Criminal Prohibitions for Wage-Fixing and No-Poaching Agreements Come into Force on June 23, 2023 – Are you Prepared?

In June 2022, the Government of Canada added subsection 45(1.1) to the Competition Act ("Act")[1]. Subsection 45(1.1) prohibits agreements between employers to fix wages and restrict job mobility, in an effort to protect labour markets.[2]

Subsection 45(1.1) comes into force on June 23, 2023. As of that date, it will be a criminal offence for unaffiliated employers to agree to fix wages, salaries or other terms of employment or to agree to not solicit or hire each other's employees.[3]

Subsection 45(1.1) Prohibits Employers from Entering into Two Types of Agreements

1. Wage-fixing agreements

The wage-fixing provision prohibits agreements between unaffiliated employers to fix, maintain, decrease, or control salaries, wages or terms and conditions of employment.[4] "Terms and Conditions" include the responsibilities, benefits and policies associated with a job. In other words, "terms and conditions" are any terms that could affect a person's decision to enter into or remain in an employment contract. Examples include job descriptions, non-monetary compensation, working hours, location and non-compete clauses, or other directives that may restrict an individual's job opportunities.[5]

2. No-poaching agreements

The no-poaching provision prohibits agreements between unaffiliated employers to not solicit or hire each other's employees. Essentially, the provision prohibits agreements between employers that limit opportunities for their employees to be hired by each other. For example, it prohibits employers from restricting the communication of information related to job openings and adopting hiring mechanisms, such as point systems, designed to prevent employees from being poached.[6]

Defences

Wage-fixing and no-poaching offences under subsection 45(1.1) are subject to the ancillary restraints defence. The ancillary restraints defence is available when restraints on competition are necessary to make certain business transactions possible or to make them more efficient.[7]

The ancillary restraints defence will apply:

• if the wage-fixing or no-poaching provisions are ancillary to or flow from a broader agreement between the parties;
• the wage-fixing or no-poaching provisions are directly related to and reasonably necessary for giving effect to the objectives of the broader agreement; and
• the broader agreement itself is legitimate and not an unlawful agreement between competitors under the criminal conspiracy provisions (subsection 45(1)) of the Act or does not independently violate subsection 45 (1.1).[8]

Examples of legitimate broader agreements include purchase and sale agreements, joints venture agreements and other types of strategic alliance agreements. Thus, it is still permissible for two companies to include wage-fixing and no-poaching provisions in their broader commercial arrangements to the extent those provisions are directly related to and reasonably necessary to ensure that the legitimate objectives of their commercial arrangements are met.[9]

Other defences such as the regulated conduct defence or the collective bargaining exemption may also apply.[10]

Penalties

As of June 23, 2023, an employer that infringes the wage-fixing or no-poaching provisions will be guilty of a criminal offence and may be imprisoned for up to 14 years or subjected to a fine (at the discretion of the court), or both.[11] 

Key Things for Employers to Know

• "Employers", under the Act, include directors, officers, and agents or employees (for example, human resource professionals).[12]
• "Conscious parallelism" does not constitute a violation. "Conscious parallelism" is when a business acts independently with awareness of the likely response of its competitors or in response to the conduct of its competitors. That said, parallel conduct with other practices, such as sharing sensitive employment information or monitoring each other's employment practices, may still attract liability.[13]
• No-poaching agreements must be mutual in order to be an infringement of the no-poaching provision. Put differently, it is not an offence when only one employer agrees to not poach another's employees.[14]
• Subsection 45(1.1) will not apply retroactively. However, the provision will apply to agreements entered on or after June 23, 2023. Furthermore, the provision will apply to conduct that reaffirms or implements older agreements.[15]

Key Takeaways for Employers  

• Employers should educate themselves and particularly their human resources personnel to ensure that they understand the new rules and the associated penalties.
• Employers should not enforce any existing terms or agreements that could violate the wage-fixing or no-poaching provisions of the Act.
• Employers should ensure that any new agreements, as of June 23, 2023, comply with the wage-fixing and no-poaching provisions of the Act.
• Employers should create new policies and train their staff to ensure that they take care when sharing information with other employers in the course of collaborative activities to avoid instances where an agreement could be implied between employers.
• Employers should seek legal advice regarding the changes to the Act prior to June 23, 2023.

If you have any questions on the upcoming changes to the Act or on wage-fixing and no-poaching agreements generally, please contact any member of our Competition and Foreign Investment or Employment and Labour groups.

[1] Competition Act, RSC 1985, c C-34.
[2] Government of Canada, "Enforcement guidance on wage-fixing and no poaching agreements" (last modified March 27, 2023), online: Government of Canada <Enforcement guidance on wage-fixing and no poaching agreements (canada.ca)>.
[3] Ibid.
[4] Ibid at 2.1.
[5] Ibid.
[6] Ibid at 2.2.
[7] Ibid at 3.1.
[8] Ibid.
[9] The Canadian Competition Bureau has advised that except where no-poaching clauses are broader than necessary or where the merger, joint venture or a strategic alliance is a sham, the Canadian Competition Bureau will generally not assess wage-fixing or no-poaching clauses that are ancillary to merger transactions, joint ventures, or strategic alliance as being offside the new provisions. Ibid at 3.1.
[10] Ibid.
[11] Ibid at 4.
[12] Ibid at 1.2.2.
[13] Ibid at 1.2.4.
[14] Ibid at 2.2.
[15] Supra note 2.