Guidelines Issued on New Wage-Fixing and No Poach Offences for Employers
On January 18, 2023, the Competition Bureau (“Bureau”) issued draft guidelines (“Guidelines”) on the application of the new section 45(1.1) offences in the Competition Act (“Act”). As we detailed last year, the new offences — which enter into force June 23, 2023 — will criminalize agreements between unaffiliated employers to: (1) to fix salaries, wages or other terms and conditions of employment; or (2) refrain from soliciting or hiring each other’s employees.
The Guidelines have been published in draft as part of a public consultation process that runs until March 3, 2023. As described below, the Guidelines provide useful clarity on the Bureau’s interpretation of aspects of the new offences but, in our view, also overreach in several notable respects.
Inspired by developments in the United States, and at the urging of the Bureau, the House of Commons Standing Committing on Industry, Science and Technology released a report in June 2021 recommending that Canada “prohibit cartel-like practices related to the purchase of goods and services, including wage-fixing agreements between competitors”. Formal amendments to the Act were tabled in the House of Commons in April 2022 as part of the government’s budget bill, and received royal assent in June 2022, with new offences set to come into force a year later. The delay on these provisions coming into force was intended to give the Bureau time to formulate guidelines, and to allow employers bring their existing practices into compliance with the new law.
Section 45(1.1) criminalizes two categories of agreements between unaffiliated employers:
- Agreements to fix, maintain, decease or control salaries, wages, or terms and conditions of employment (subsection 45(1.1)(a)); and
- Agreements not to solicit or hire each other’s employees (subsection 45(1.1)(b)).
Much of the Guidelines describe, in plain language, how section 45(1.1) fits into the broader scheme of section 45 (the general cartel offence). For instance, the Guidelines explain that the phrase “unaffiliated employers” ensures that agreements between affiliates are not caught. It also makes clear that the existing exemptions and defences under section 45 remain available under the new section 45(1.1) offences. Of particular importance is the ancillary restraints defence (section 45(4)), which allows the accused to avoid liability where one establishes, on a balance of probabilities, that: (i) the impugned agreement is ancillary to a broader or separate legitimate agreement between the parties; and (ii) the wage-fixing or no-poach provision is related to and reasonably necessary to give effect to the broader legitimate agreement.
Importantly, the Guidelines explicitly state that the new section 45(1.1) offences are to apply only to so-called “naked restraints” — that is, agreements between employers that contravene the new offences and have no other legitimate purpose. That said, this position is undercut somewhat by the hypothetical examples the Bureau provides in the Guidelines. Example 3 is telling. It concerns a recruitment agency’s staffing agreement with a company, which includes a two-way non-solicitation clause. Instead of advising that the non-solicitation clause should not be caught by the new no-poach offence in subsection 45(1.1)(b) — since it is not a “naked restraint”, as it was entered into in connection with the broader legitimate purpose of the recruitment agency providing specialized labourers to the company on a temporary basis — the Example discusses whether the parties could defend the non-solicitation clause using the ancillary restraints defence. Even here, the Bureau emphasizes that the availability of the defence will be “subject to assessment” as to whether terms attached to the ancillary restraint are “reasonably necessary” and only appears to endorse the reasonable necessity of the restriction “while the agreement is in effect”.
Moreover, the Guidelines helpfully also re-emphasize that “conscious parallelism” — described by the Bureau as “when a business acts independently with awareness of the likely response of its competitors or in response to the conduct of its competitors” — is not an offence (presumably as such conduct stops short of reaching an agreement). The Bureau warns, however, that “parallel conduct coupled with facilitating practices, such as sharing sensitive employment information or taking steps to monitor each other’s employment practices, may be sufficient to prove that an agreement was concluded”. In our view, the latter comment (i.e., monitoring another firm’s employment practices) substantially overreaches and would not, absent additional evidence, be a sufficient basis upon which to infer the existence of an illegal agreement.
More Focused Guidance
In addition to its general guidance, the Bureau provides clarification on several narrower topics, though some are qualified in a manner that raises further questions.
- “Wage-fixing” is more than just wages. The new section 45(1.1)(a) offence covers wages, salaries or “other terms or conditions of employment”. The Guidelines elaborate that this may include “job descriptions, allowances such as per diem and mileage reimbursements, non-monetary compensation, working hours, location and non-compete clauses, or other directives that may restrict an individual’s job opportunities.” This is a lengthy list, and raises the important question for employers of what sort of other “terms and conditions of employment” may trigger liability. On this point, the Guidelines helpfully clarify that the Bureau will generally limit its enforcement to agreements relating to terms and conditions “that could affect a person’s decision to enter into or remain in an employment contract” (emphasis added).
- No-poach agreements must be mutual (two-way). The Guidelines helpfully state that a one-sided non-solicit is not an agreement to not hire “each other’s” employees, and, therefore, section 45(1.1)(b) is only triggered where employers mutually agree to refrain from solicitation. This should provide comfort to parties who engage outside consultants or staffing agencies and agree not to solicit or hire those third parties’ employees. However, the Bureau cautions that all agreements between a given group of employers can be considered together, such that enforcement may still occur where “separate arrangements result in two or more employers agreeing to not poach each other’s employees”.
- No-poach enforcement may be overbroad. Unsurprisingly, the Guidelines note that the new no-poach offence “prohibits all forms of agreements between employers that limit opportunities for their employees to be hired by each other.” However, the Bureau then elaborates that “[e]xamples of such limitations include restricting the communication of information related to job openings and adopting hiring mechanisms, such as point systems, designed to prevent employees from being poached or hired by another party to the agreement.” The latter example is overbroad — it is difficult to see how or why a company’s unilateral decision to adopt measures in an effort to retain its own personnel should be viewed as a bilateral criminal agreement with another employer to refrain from poaching staff. The Guidelines attempt to mitigate this overreach with an explanatory footnote, noting that “[f]or greater certainty, the Bureau will examine the matter to determine whether there is evidence of an agreement between employers to not solicit or hire each other’s employees”. In our view, this is insufficient, and the Guidelines would be improved if the reference to “hiring mechanisms” were removed.
- Comfort for M&A transactions. As expected, the Guidelines clarify that the new offences are not intended to apply to conduct — such as standard non-solicit or non-compete clauses — arising out of M&A or joint venture transactions. Instead, the Bureau “recognizes the significance that non-solicitation clauses can play in many agreements to purchase a business”, and thus 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.” The Guidelines caution that this approach would not apply to transactions “where those clauses are clearly broader than necessary in terms of covered employees, territories or duration” or instances where the transaction is a sham or fig leaf designed to camouflage anti-competitive conduct.
Significance and Next Steps
The new section 45(1.1) employer offences represent, in our view, the most stringent wage-fixing and no-poach antitrust enforcement regime in the world. The potential liabilities under these offences are substantial — prison sentences of up to 14 years, corporate fines with no statutory limit (but instead “in the discretion of the court”), civil damages claims (including by way of class actions), reputational harm, and potential debarment of companies with public contracts under the Federal Integrity Regime (or provincial equivalents including the stringent Act Respecting Contracting by Public Bodies in Québec which provides for automatic 5-year debarment for a breach of s. 45). While the Guidelines will not bind a court (or private plaintiffs), they represent an important statement of Bureau enforcement priorities and, it is hoped, may be further clarified through the public consultation process.
Commentary on the draft Guidelines may be provided to the Bureau through March 3, 2023. Parties interested in providing comments can do so directly here, or are invited to contact any of the authors of this article.
For more information, please consult our Competition/Antitrust & Foreign Investment Group.
 WAGE FIXING IN CANADA: AND FAIRNESS IN THE GROCERY SECTOR, Report of the Standing Committee on Industry, Science and Technology, June 2021, 43rd Parliament, 2nd Session, at page 7.
No Poach Wage-Fixing