On June 23, 2022, Bill C-19, also known as the Budget Implementation Act, 2022, No.1(“BIA”), received royal assent. As discussed in more detail in our previous blog post, the BIA included significant amendments to the Competition Act (the “Act”), including the addition of new criminal cartel provisions prohibiting so-called wage-fixing and no-poaching agreements, which will become effective as of June 23, 2023. More specifically, these provisions will prohibit agreements between unaffiliated employers to either “fix, maintain, decrease or control salaries, wages or terms and conditions of employment” or “not solicit or hire employees”.
On May 30, 2023, in advance of these new provisions coming into force, the Competition Bureau (the “Bureau”) released guidelines that describe its approach to the interpretation and application of these provisions (the “Guidelines”). The Guidelines supplement the Bureau’s current Competitor Collaboration Guidelines. Notably, the Bureau had previously released draft guidelines with respect to these new provisions, and had invited interested parties to provide comments on the draft guidelines.
This blog post discusses the important components of the Guidelines in practical terms and provides key takeaways and compliance tips for businesses moving forward. The need for businesses to comply with these provisions cannot be overstated, as employers that breach them could face significant penalties, including fines in the discretion of the court and/or imprisonment for a term of up to 14 years. They will also be subject to damages claims (primarily in the form of class actions) from those who allegedly suffered damage as a result an alleged illegal agreement.
I. General Principles
The Guidelines set out several principles of general application and, in doing so, answer a number of preliminary questions that arose when the new provisions were first announced:
- Will the Provisions Apply to Existing Agreements? The Guidelines indicate that the new provisions will apply to new agreements entered into by unaffiliated employers on or after June 23, 2023, as well as to conduct that reaffirms or implements agreements that were made before that date. Consistent with this approach, the Guidelines clarify that the Bureau is unlikely to find a pre-existing wage-fixing or no-poaching agreement problematic when the parties take no steps to reaffirm or implement the restraint on or after June 23, 2023. Notably, the Guidelines also make it clear that at least two parties must reaffirm or implement the restraint for the Bureau to establish the requisite consensus or “meeting of the minds”.
- Naked Restraints versus Legitimate Collaborations? The Guidelines indicate that the new provisions are directed at “naked restraints” on competition, namely restraints on wages or job mobility that are not implemented to further a legitimate collaboration, strategic alliance or joint venture. Restraints that further a legitimate collaboration, strategic alliance or joint venture may be reviewed by the Bureau under the civil competitor collaboration provisions, which apply only to existing or proposed agreements that are likely to result in a substantial prevention or lessening of competition. This approach echoes the Bureau’s traditional two-step approach when deciding whether to review an agreement between competitors under the criminal cartel provisions (s. 45) or the civil competitor collaboration provisions (s. 90.1).
- Are Employers Limited to Businesses? The new provisions will apply to agreements between “unaffiliated employers”, regardless of whether they compete in the supply of a product or service. In this regard, as indicated in the Guidelines, “employers” include not only businesses, but also directors, officers, agents and employees, such as human resource professionals. Accordingly and by way of example, the Bureau views agreements between an officer of one company and a director of another company as captured. In that case, each of the individuals and companies could, according to the Bureau, be potentially subject to prosecution under the new provisions.
- Does an Employment Relationship Exist? According to the Guidelines, the question of whether an employer-employee relationship exists between parties will depend on the nature of the parties’ interactions and applicable provincial and federal laws. The Guidelines note that, depending on applicable legislation, an employer’s relationship with independent contractors could evolve over time. For example, if an employer treats an independent contractor as an employee, the business contract between them could transform into an employment relationship.
- What about Information Sharing? According to the Guidelines, in certain circumstances, information sharing may give rise to an inference that an agreement exists between the parties contrary to the wage-fixing and no-poach provisions. That being said, generally such an inference will only occur where the parties are also engaging in parallel conduct. In any event, the Guidelines encourage unaffiliated employers to be cautious when sharing competitively sensitive information, such as terms of employment.
II. Types of Prohibited Agreements
The Guidelines provide further particulars regarding the types of prohibited agreements:
a. Wage-fixing Agreements
As noted above, the new provisions prohibit agreements between unaffiliated employers “to fix, maintain, decrease or control salaries, wages or terms and conditions of employment”. As such, the Guidelines indicate that the following types of agreements would come within the scope of these provisions:
- agreements to fix, maintain, decrease or control salaries;
- agreements to fix, maintain, decrease or control wages; and
- agreements to fix, maintain, decrease or control terms and conditions of employment.
Significantly, the Guidelines note that “terms and conditions” include the responsibilities, benefits and policies associated with a job, including, for example, job descriptions, allowances (such as per diem and mileage reimbursements), non-monetary compensation, working hours, location and non-compete clauses, and other directives that may restrict an individual’s job opportunities. That being said, the Guidelines make clear that the Bureau’s enforcement generally is limited to those “terms and conditions” that could affect a person’s decision to enter into or remain in an employment contract.
Whether an agreement “fixes, maintains, decreases or controls” will be measured relative to the salaries, wages or terms and conditions of employment that likely would exist in the absence of the restraint. For example, an agreement to limit a salary increase could be characterized as a “decrease” and violate the Act.
b. No-poaching Agreements
As noted above, the new provisions prohibit agreements between unaffiliated employers “to not solicit or hire each other’s employees”. According to the Guidelines, when an agreement limits an employee’s job opportunities, the Bureau may examine whether the limitation is in furtherance of a no-poaching agreement. This could include, among other things, agreements restricting the communication of information related to job openings and agreements adopting biased hiring mechanisms.
Importantly, consistent with the language in the new provisions, the Guidelines make it clear that no-poach offence will apply only where unaffiliated employers agree to not solicit or hire “each other’s” employees. Issues will not arise in situations where only one employer agrees not to poach another employer’s employees – something which is definitely relevant in the context of purchase and sale transactions.
III. Ancillary Restraints Defence
As with the existing cartel provisions, the new provisions include an ancillary restraints defence (“ARD”). In this regard, the Guidelines indicate that the ARD will be available when:
- the restraint is ancillary to, or flows from, a broader or separate agreement that includes the same parties;
- the restraint is directly related to and reasonably necessary for achieving the objective of the broader or separate agreement; and
- the broader or separate agreement, when considered without the restraint, does not violate the new provisions.
While the Guidelines are light on examples of when the ARD will be available, they do acknowledge the significance that non-solicitation clauses can play in many business agreements. In this regard, the Bureau recognizes that “reasonably necessary restraints can play an important role in stabilizing and protecting parties’ business interests in the course of advancing legitimate pro-competitive objectives.” The Guidelines note that the Bureau will generally not assess wage-fixing or no-poaching clauses that are ancillary to merger transactions, joint ventures or strategic alliances under the criminal track. They also recognize the legitimate role that such restraints can play in franchise agreements and certain service provider-client relationships, such as staffing or IT service contracts.
Rather, such clauses will typically be assessed under the civil competitor collaboration provisions. An exception would be where those clauses are clearly broader than necessary in terms of duration or affected employees, or where the business agreement or arrangement is a sham.
IV. Competition Bureau Enforcement Examples
The Guidelines provide four examples illustrating the Bureau’s enforcement approach to the new provisions. The examples focus on wage-fixing agreements, reciprocity and no-poaching agreements, employer-employee relationships and the scope of restraints, and no-poaching and franchise agreements.
V. Key Take-Aways and Compliance Tips
The Guidelines suggest that the Bureau will vigorously enforce the new provisions in Act, while also signalling an intent to focus on naked restraints on competition. The following are a few key takeaways and compliance tips for businesses moving forward:
- Transaction Agreements: The Bureau helpfully clarifies that it will generally not assess wage-fixing or no-poaching clauses that are ancillary to merger transactions, joint ventures or strategic alliances under the criminal track. However, non-solicit clauses or other employee-related provisions in transaction agreements should have regard to the new wage-fixing/no-poaching prohibition. In particular, provisions that go beyond what may be typical in duration and scope should be considered closely to ensure they are reasonably necessary to achieve the objective of the broader transaction agreement. As a practical matter, the Guidelines do not provide detailed guidance on when and how restrictions can be used in common types of transaction related agreements where employee-related provisions are commonly found, such as purchase agreements, non-disclosure agreements and exclusivity agreements. As a result, careful planning will be required to mitigate enforcement risk.
- Ancillary Restraints Defence: The Guidelines make clear that the Bureau will critically assess any reliance on the ARD having regard to a number of factors and the relevant circumstances, including, for example, the terms of the agreement, the form of the agreement, the functional relationship or lack thereof between the restraint and the principal agreement, and how the restraint makes the principal agreement more effective in accomplishing its purpose. As a result, to the extent one or more parties intend to rely on the ARD, care should be taken.
- Franchisor and Franchisees: .Although the Guidelines recognize that certain restraints can play an important role in the franchise model and in agreements between franchisors and franchisees, they nevertheless caution that the Bureau may still initiate an investigation under the new provisions if those restraints are clearly broader than necessary. In addition, with respect to agreements among franchisees, the Guidelines note that the mere fact that franchisees are aware that each franchisee has entered into a parallel standard franchise agreement with the franchisor that includes no-poach restraints will not raise concerns under the new provisions, unless there is evidence of an intention between the franchisees to enter in a no-poaching agreement with each other.
- Review your HR Practices: Employers should ensure that they are not involved in practices with other unaffiliated employers (whether or not those employers are competing businesses) that may be considered (i) wage-fixing or no-poach agreements/arrangements, or (ii) improper information sharing or other practices that could be perceived as facilitating such agreements/arrangements. Competition/antitrust compliance measures that seek to mitigate the risk of non-compliance with the conspiracy provisions should be expanded to HR professionals.
As noted above, employers that violate these provisions will face significant penalties and possibly class action lawsuits. Compliance with these new provisions is a must.