Williams HR Law LLP

COMPETITION ACT AMENDMENTS: CRIMINAL PROHIBITION OF WAGE-FIXING AND NO-POACHING AGREEMENTS

June 28, 2023

On June 23, 2023, amendments to the Competition Act came into force, making it a criminal offense for employers to engage in wage-fixing and no-poaching agreements with unaffiliated employers.

It is now illegal under the Competition Act for unaffiliated employers to agree to:

  • fix, maintain, decrease, or control salaries, wages or terms and conditions of employment (“wage-fixing” agreements), or
  • refrain from soliciting or hiring each other’s employees (“no-poaching” agreements).

The amendments also remove the maximum fine of $25 million for violations of the criminal conspiracy provision under the Competition Act, which includes the new ban against wage-fixing and no-poaching agreements, and financial penalties are now at the court’s discretion. Violating the new wage-fixing or no-poaching agreements is punishable by a fine, a prison term of up to 14 years, or both. These violations can also expose employers to class action lawsuits.

Wage-Fixing Agreements

Wage-fixing agreements occur when two or more unaffiliated employers agree to maintain, decrease, or control employees’ wages or salaries. It also includes such agreements that control or limit terms and conditions of employment for employees.

What is meant by “terms and conditions” of employment is not strictly defined by the Competition Act. However, in advance of the amendments coming into force, the Competition Bureau published Guidelines for the enforcement of wage-fixing and no-poaching agreements, which provides clarity. According to the Guidelines, “terms and conditions” can include, but is not limited to, information that is considered sensitive, such as:

  • responsibilities;
  • benefits;
  • job descriptions;
  • allowances;
  • per diems;
  • mileage requirements;
  • non-monetary compensation;
  • working hours;
  • location;
  • non-compete clauses; and
  • other directives that restrict or control job opportunities.

It is essential for employers to understand that business or operational decisions that effectively limit employees’ ability to leave their current employment in favour of a competitor would be illegal under the Competition Act.

No-Poaching Agreements

No-poaching agreements occur when there is a reciprocal agreement between two or more unaffiliated employers to refrain from hiring each other’s employees, effectively limiting employees’ opportunities in the job market. The Competition Act limits the criminality of no-poaching agreements to those that are mutually agreed upon by the employers. The Competition Bureau’s Guidelines specify that the Competition Bureau is less focused on one-sided no-poaching agreements, which can occur when one employer agrees not to solicit employees of a competitor, but the competitor does not reciprocate.

For example, an employer that contracts with a third-party consulting agency and agrees not to solicit the agency’s employees would be considered to have a one-sided no-poaching agreement so long as the consulting agency does not also agree to not solicit the employer’s workers. Such an example would not be an illegal agreement.

“Unaffiliated” and “Affiliated” Employers

Notably, the ban on wage-fixing and no-poaching agreements only applies to unaffiliated employers, meaning that these agreements are permitted between affiliated employers. How can employers know whether they are affiliates? The Competition Act states that two or more affiliated employers are those who:

  • control or are controlled by each other; or
  • are both controlled by the same entity or individual.

Employers should understand whether their relationship with another employer is considered “unaffiliated” regardless of whether a formal agreement is in place. Under the Competition Act, courts can infer the existence of wage-fixing or no-poaching agreements based on only circumstantial evidence. Therefore, contracts, emails, or other written agreements do not need to exist for a court to find the unaffiliated employers unlawfully engaged in wage-fixing or no-poaching agreements. Instead, courts can infer the existence of wage-fixing or no-poaching agreements if an employer has seemingly acted independently to create such an agreement, in combination with a facilitating practice such as sharing sensitive employee information with an unaffiliated employer. This raises the possibility that even casual conversations between parties of two competing organisations that later influence operational policies or directives, could be found by courts to be a violation of the Competition Act.

The good news for employers is that the ancillary restraints defence is available in certain circumstances. The Competition Bureau’s Guidelines state that the ancillary restraints defence allows for restraints on competition, including wage-fixing and no-poaching agreements that would otherwise violate the Competition Act if:

  • the restraints are supplemental to a broader or separate agreement between the same two parties;
  • the restraint on competition is directly related to, and is reasonably necessary to give effect to the objective of the broader or separate agreements; and
  • the broader and separate agreement by itself, is not prohibited by the Competition Act.

Takeaways

  1. Employers should treat all employment terms and conditions as highly sensitive and confidential information.
  2. Employers should ensure to avoid even casual discussions with unaffiliated employers about employees’ terms and conditions, as the appearance of engaging in wage-fixing and no-poaching agreements can expose employers to liability.
  3. Employers should seek legal advice prior to enacting any business or organisational policies, procedures, or directives that could have the effect of a wage-fixing or no-poaching agreement.

This blog is provided as an information service and summary of workplace legal issues.

This information is not intended as legal advice.

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