Table of Contents
Table of Contents
Introduction
On June 23, 2023, the Canadian Competition Act (Act) will integrate a new criminal provision prohibiting wage-fixing and no-poach agreements. The impending shift in law holds severe criminal and monetary consequences. It is therefore essential for businesses to stay updated and adopt best practices to ensure full compliance.
The New Provision Explained
The fresh criminal provision seeks to prohibit any agreements between non-affiliated employers that:
- Fix wages,
- Determine terms or conditions of employment,
- Refrain from hiring or soliciting each other’s employees.
The law applies regardless of whether the involved employers are competitors.
The Competition Bureau’s Guidance
The Competition Bureau (Bureau) has issued a draft guidance illustrating its interpretation of the new provision. Even though not legally binding on either the Bureau or the courts, key highlights of the guidance include:
- The wage-fixing provision applies to any terms or conditions of employment that could affect an individual’s decision to either enter or continue in an employment contract, such as job descriptions, working hours, or work location.
- The no-poach component disallows reciprocal agreements between two or more employers, not to hire or solicit each other’s employees. Nonetheless, it doesn’t prevent one-way agreements where one employer commits not to hire or solicit another’s employees. Multiple one-way agreements resulting in two or more employers agreeing not to poach each others’ employees would be banned.
Why Now?
The prohibition against wage-fixing or no-poach agreements was introduced by the Canadian government in its April 2022 budget legislation and enacted on June 23, 2022. Due to the criminal nature of the new provision, a one-year delay was implemented to ensure businesses are compliant once the law is in effect. As a result, the Bureau is expected to believe that businesses have had adequate time to guarantee compliance and may promptly begin enforcement once the provision comes into force.
Defences Against the New Provision
The new provision will fall under the existing ancillary restraints defence (ARD) that applies to the criminal conspiracy provisions of the Act. The ARD allows otherwise illegal agreements or arrangements directly related to, and reasonably necessary to effectuate, a broader or separate agreement not illegal itself.
A fact-specific assessment must be conducted in the context of each individual agreement to determine if the ARD applies. The Bureau’s draft guidance suggests that wage-fixing or no-poach agreements implemented in the context of a genuine merger, joint venture, or strategic alliance are unlikely to cause issues, provided their scope is not broader than necessary.
Potential Penalties
Penalties for violating the Act’s criminal conspiracy provision, including the new criminal prohibition against wage-fixing or no-poach agreements, will change from June 23, 2023. The maximum penalties will include up to 14 years of imprisonment (unchanged), a fine at the court’s discretion (up from a maximum of CAD 25-million), or both. Violations of the new provision may also expose employers to private actions for damages, including class actions.
Penalty for Wage-Fixing And No-Poach Agreements
How Can Your Company Ensure Compliance?
Existing Agreements
Review current agreements containing wage-fixing or no-poach provisions to ensure compliance with the law. If necessary, consider revising these agreements to align with the new provision. Protocols should be implemented to assure that conduct relating to wage-fixing or no-poach provisions in existing agreements conforms with the new provision.
New Agreements
Ensure that template agreements are updated to exclude provisions that might violate the new prohibition against wage-fixing or no-poach agreements. Agreements entered into on or after June 23, 2023, with unaffiliated employers, including customers, suppliers, or other third parties, should not contravene the new provision. If wage-fixing or no-poach provisions are necessary components of a broader agreement, they should be drafted as narrowly as possible.
Information Sharing
Ensure that sensitive employment information is not shared with other employers, except for legitimate business reasons, such as due diligence or integration planning in a merger context. The sharing of sensitive employment information, combined with parallel conduct, might suggest an illegal wage-fixing or no-poach agreement.
Compliance
Update training and compliance programs to mirror the new legal realities, and provide training to relevant business personnel on the new provision.
This article aims to provide a general guide to the subject matter. You should seek expert advice regarding your specific circumstances.
What does the new provision of the Competition Act entail?
The new provision under the Competition Act, effective from June 23, 2023, criminalizes wage-fixing and no-poach agreements between non-affiliated employers. The prohibition applies regardless of whether the employers are competitors. It seeks to maintain fair competition in the employment market.
Why is this provision being introduced now?
The provision was introduced in the April 2022 budget legislation and enacted on June 23, 2022, with a one-year delay to allow businesses to ensure compliance. This period was considered sufficient for businesses to adapt their practices and policies in line with the new law.
Are there any exceptions to the new provision?
The new provision falls under the Ancillary Restraints Defence (ARD) applicable to criminal conspiracy provisions of the Act. It allows for agreements directly related to and reasonably necessary for the execution of a broader or separate agreement, provided the latter is not illegal.
What are the penalties for breaching the new provision?
Violation of the provision may lead to a maximum of 14 years imprisonment, a discretionary fine (increased from a cap of CAD 25 million), or both. Additionally, breaches may also expose employers to private actions for damages, including class actions.
How can a company ensure compliance with this new provision?
Companies can ensure compliance by reviewing and revising current and future agreements to avoid wage-fixing or no-poach provisions. They should also update training and compliance programs and provide training to relevant personnel on the new provision. It’s crucial to refrain from sharing sensitive employment information with other employers unless for bona fide business reasons.
