And other anticompetitive employment-related agreements between employers
In brief
The Government of Canada has amended the federal Competition Act, Canada’s consolidated antitrust statute, to criminalize wage-fixing and no-poach agreements between employers, effective 23 June 2023.
The criminal prohibition will apply to all employers, and is not limited only to those in competing sectors or industries. Employers who contravene the new prohibition against labor-related collusion risk incurring significant fines, the potential for imprisonment, or both, and heightened private and class action litigation risk.
Employers take action now to review relevant agreements and policies to ensure they are in compliance when these amendments come into effect.
Contents
Recommended actions
Ahead of the amendments coming into effect on 23 June 2023, employers should take the following steps toward compliance:
- Review existing agreements to identify and amend contravening provisions. Look beyond M&A transaction agreements, which often contain no-poach provisions, to agreements with consultants, agents or brokers, suppliers, and customers, as well as outsourcing agreements and franchising agreements.
- Engage employees responsible for hiring/compensation in discussions to identify business areas and activities that may be at higher risk, particularly individuals in externally-facing human resources roles.
- Update internal policies and compliance programs to reflect the amendments – consider expanding compliance training to employees in human resources, compensation, and procurement roles who may have historically not participated in competition compliance training.
Background
The Government of Canada adopted the provision to criminalize agreements between employers to address a gap in the existing criminal conspiracy provision in the Competition Act. This provision, in section 45 of the Act, criminalizes agreements between competitors that fix prices, allocate markets or customers, and restrict output. In 2020, the Competition Bureau sought legal advice from the Canadian Department of Justice and the Public Prosecution Service of Canada before confirming the long-held view that the existing criminal conspiracy provision does not apply to buy-side agreements and arrangements (i.e., those relating to the purchase rather than the sale of products or services) such as joint purchasing arrangements, and including collaboration on the terms and conditions of employment. Amendments to the criminal provision in 2009 removed the word “purchase,” thereby ostensibly limiting the scope to supply-side agreements. However, it was envisioned at the time that buy-side agreements or arrangements could nonetheless be assessed under a corresponding civil provision, which allows for an order to be issued prohibiting agreements between competitors or potential competitors if it can be shown that the agreement or arrangement substantially prevents or lessens competition in a market, or are likely to.
The amendments criminalizing no-poach and wage-fixing agreements formed part of a larger package of amendments to Canada’s competition law adopted on 23 June 2022 as part of budget implementation legislation, which resulted in quick passage with little opportunity for debate. The amendments were part of the Government of Canada’s response to calls for legislative reform by the Commissioner of Competition, commentators, and the broader public. The new prohibition aligns Canadian competition law with certain other jurisdictions, notably the United States, which has taken strong action to restrict the use of no-poach and wage-fixing agreements.
The amendment, and the accompanying changes, are part of a broader program of competition law reform. On 17 November 2022, the federal Minister of Innovation, Science and Industry announced a comprehensive review of the Competition Act. This legislative review is intended to examine Canada’s competition law framework including the scope of the Competition Act, enforcement methods and corrective measures, and the improvement or reinforcement of competition policy in increasingly digital and data-driven markets. As part of the public consultation, the Government of Canada will hold a series of roundtables, and written submissions can be made online until 27 February 2023.
In depth
The Amendments
The amendments introduced a new provision criminalizing any agreement (implicit or explicit) between employers to fix, maintain, decrease or control wages (wage-fixing agreements) or terms and conditions of employment, or not to solicit or hire each other’s employees (no-poach agreements). This prohibition will apply to all employers, regardless of whether they compete directly with each other. For example, a no-poach agreement between a grocery store and a retail clothing store could be prohibited, despite the businesses operating in non-competing markets. Additionally, the new provision covers agreements related to the restrictions on “terms and conditions” of employment, which is much broader than merely restricting wages/salaries. As the Competition Bureau has yet to release guidance on its enforcement priorities and how broadly the new provision will be interpreted once it enters into force, employers should likely take a conservative approach and consider terms and conditions to include things like flexible work policies, vacation and sick days, parental leave and employee benefits.
The criminalization of no-poach, wage-fixing and other employment-related agreements increases risk for all employers. Employers can face a fine at the court’s discretion, in principle a prison sentence of up to 14 years, or both. Consistent with amendments that will remove the existing cap on criminal fines that apply to anticompetitive buy-side competitor agreements (currently CAD 25 million), the employment-related prohibitions will similarly have no maximum. Notably, the criminal conspiracy provisions including the new employment-specific provisions in the Competition Act are per se offenses, and therefore do not require proof that these agreements harmed competition, or of their actual effect on a market – the agreement itself is considered criminal.
In addition to the risk of regulatory enforcement, private parties can also pursue civil actions (including class actions) against employers, which based on the experience Canada has had to date with competition class actions, can result in substantial damages being awarded.
Employers may, in certain circumstances, avail themselves of an “ancillary restraints defence”, if an otherwise prohibited no-poach or wage-fixing agreement is necessary in the context of a broader, legitimate agreement. This must be carefully assessed on a case-by-case basis. We expect the Competition Bureau to release guidance providing insight into both its enforcement priorities, and how the “ancillary restraints defence” may apply to employment related agreements.
Ahead of the amendments coming into effect, employers should review existing agreements to identify and amend contravening provisions, conduct a risk assessment of existing employment related activities, and update internal policies and compliance programs to reflect the amendments.
1 International global competition law and labor – The battle continues in the market for talent.
2 United States: DOJ continues to prioritize the protection of competitive labor markets.
