Amendments to the Competition Act regarding the legality of wage-fixing and no-poaching agreements

Introduction

In a previous article, we reported on amendments to the Competition Act (the “Act”)¹ pursuant to the Act to implement certain provisions of the budget tabled in Parliament on April 7, 2022, and other measures (the “BIA”).² These amendments attest to the Canadian government’s intention to modernize Canada’s competition regime and foster a competitive market, by affording workers better prospects for mobility and prosperity.³

As a central plank of this extensive reform project, undertaken in winter 2022, the government has taken aim at wage-fixing and no-poaching agreements between unaffiliated employers.⁴

Conduct prohibited under new section 45(1.1) of the Act

Effective June 23, 2023, section 45(1.1) of the Act prohibits such agreements between unaffiliated employers⁵ and imposes serious criminal penalties for employers who contravene the new provisions.⁶ Conviction requires proof beyond a reasonable doubt that an employer conspired, agreed or arranged to enter into such an agreement.⁷

Conversely, wage-fixing and no-poaching agreements between affiliated employers, e.g. two corporations controlled by the same parent company, are not targeted by the prohibition.⁸

It should be noted that the existence of a conspiracy, agreement or arrangement may be inferred from circumstantial evidence, with or without direct evidence of communication between the alleged parties to it.⁹ For example, the Competition Bureau (the “Bureau”) indicates that in certain circumstances, the sharing of commercially sensitive information between unaffiliated employers may give rise to an inference that a prohibited agreement exists between them.¹⁰

Among the sanctions for contravening section 45(1.1), the Act provides that a person found guilty thereunder may be imprisoned for up to 14 years or subjected to a fine of an indeterminate amount, or both.¹¹ In addition, the employer may be sued by any person who has suffered loss or damage as a result of such an agreement, including in a class action.¹²

Exceptions and defence grounds

However, employers will be able to set up certain exceptions and defence grounds against the offence they are accused of, which are provided for in the Act. These include the following:

1. Wage-fixing and no-poaching agreements between affiliated employers

As indicated above, these agreements are not targeted by the amendments to the Act.

2. Ancillary restraints defence

Subsection 45(1.1) is directed only at “naked restraints” on competition “that are not implemented to further a legitimate collaboration, strategic alliance or joint venture.”¹³ Thus, the defence provided for in section 45(4) of the Act “is available when certain desirable business transactions or collaborations require restraints on competition to make them efficient, or even possible.”¹⁴

The employer must establish, on a balance of probabilities, that:

i) The wage-fixing or no-poaching clauses are ancillary to a broader or separate agreement that includes the same parties, such as a contract of enterprise or for services;

ii) Such clauses are directly related to, and reasonably necessary for giving effect to the objective of that agreement;¹⁵

iii) The agreement does not violate section 45(1.1) of the Act when considered without the restraint.

3. Regulated conduct defence

This defence ground is available where the conduct at issue is regulated by federal or provincial legislation.¹⁶

4. Collective bargaining activities

Section 4(1)(c) of the Act creates an exemption for agreements between two or more employers, in certain sectors, pertaining to collective bargaining with their employees in respect of salary or wages or employment conditions.

Agreements not targeted by the new offences provided for in the Act

Some wage-fixing and no-poaching agreements are not targeted by the Act. These include:

• Unilateral agreements such as those frequently concluded by job placement agencies with a client, i.e. where a single employer agrees not to poach the employees of another employer, as the Bureau will view the restraint as one-way;
• Agreements concluded before June 23, 2023, provided there is no conduct that reaffirms or implements agreements that were made before that date.

Good practices to adopt

To reduce the risks associated with these amendments to the Act and ensure compliance, employers can implement a few sound practices:

• Provide training to the directors, officers and key employees on the new offences provided for in the Act;
• Update any internal policy or document related to the practices targeted by the new offences provided for in the Act;
• Reassess the process for sharing commercially sensitive information when collaborating with other employers;¹⁷
• Reassess the process for receiving commercially sensitive information from other employers;¹⁸
• Closely review the no-poaching and wage-fixing clauses in contracts concluded before June 23, 2023 to ensure they are covered by a defence ground or exception provided for in the Act, or if necessary issue internal guidelines on carrying out such agreements.

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¹ Competition Act, R.S.C., 1985, c. C-34.
² Budget Implementation Act, 2022, No. 1, S.C. 2022, c. 10.
³ Innovation, Science and Economic Development Canada, The Future of Competition Policy in Canada, 2022, online: <The-Future-of-Competition-Policy-eng.pdf (canada.ca)>.
⁴ Section 45 of the Act.
⁵ Section 45(2) of the Act.
⁶ It should be noted that the Competition Bureau specifies in its guidelines that the meaning of “employer” includes not only a company’s directors and officers, but also its employees or agents, such as human resource professionals. See section 1.2.3 of the Enforcement Guidelines on wage-fixing and no poaching agreements published by the Competition Bureau, online: <Enforcement Guidelines on wage-fixing and no poaching agreements (canada.ca)> (the “Guidelines”).
⁷ The Crown has the burden of proving beyond a reasonable doubt that an illegal wage-fixing or no-poaching agreement was entered into.
⁸ See section 2(2) of the Act, which defines the concept of affiliation.
⁹ Section 45(3) of the Act.
¹⁰ Section 1.2.5 of the Guidelines.
¹¹ Previously, the maximum amount was set at $25 million (Section 45(2) of the Act).
¹² Section 36 of the Act.
¹³ Section 1.1 of the Guidelines.
¹⁴ Section 3.1 of the Guidelines.
¹⁵ The Competition Bureau indicates that it may take into account the duration, subject matter and geographic scope of such agreements.
¹⁶ Section 45(7) of the Act.
¹⁷ Section 1.2.5 of the Guidelines.
¹⁸ Section 1.2.5 of the Guidelines.