Important Changes Canada’s federal Competition Act
On June 23, 2023, amendments to Canada’s federal Competition Act came into force making it an offence for two or more employers to enter into an agreement that either: (1) depresses wages or (2) restricts the ability of a worker employed by one of the employers to obtain employment at another of the employers.
The amendment adds a new provision at s. 45 (1.1) of the Act that provides as follows:
Every person who is an employer commits an offence who, with another employer who is not affiliated with that person, conspires, agrees or arranges
(a) to fix, maintain, decrease or control salaries, wages or terms and conditions of employment; or
(b) to not solicit or hire each other’s employees.
It is clearly stated that this provision does not apply to “affiliated” entities. Thus, a group of companies that are controlled by the same parent company would not be subject to these restrictions. For example, such affiliated companies would not contravene this provision if they set wages across the group of companies or created policies limiting job opportunities as between the separate companies. Companies that are not affiliated would be prohibited from doing so.
It is unlikely these new laws will affect individual employment agreements. The activity targeted by the Competition Act amendment specifically involves agreements between employers (and may even be clandestine in nature). Nonetheless, it is possible that one of the employers to a wage-fixing or no-poaching/no-hiring agreement places restrictions in its written employment contracts. Such provisions would likely be deemed null and void.
Businesses should carefully consider agreements they might put in place for, or in anticipation of, partnerships, joint ventures and cooperation agreements with unrelated entities. For example, if two businesses are considering cooperating on the development of new products/services, they would typically protect their confidential information and intellectual property with non-disclosure and non-competition agreements. Often times, such agreements will include provisions prohibiting the solicitation or hiring of each other’s workers.
However, the “ancillary restraints defence” (s. 45(4)), provides that it is not an offence if a restraint on competition (wage-fixing or no-poaching/no-hiring) is a necessary term of a broader, legitimate agreement (for which the goal is not to restrain competition). For example, if two companies want to jointly develop a new technology and enter into an agreement to protect their assets (including a no-poaching/no-hiring clause), there is a broader agreement at play with a legitimate purpose (developing a new technology). These companies could argue that without a no-poaching/no-hiring agreement, they would be placed in such a vulnerable position that they would not otherwise attempt to cooperate as anticipated. The economy and labour markets lose when companies are prevented from developing new products.
The Competition Bureau’s Enforcement Guidelines on Wage-Fixing and No-Poaching Agreements (“Guidelines”) indicates the Bureau will “generally not assess wage-fixing or no-poaching clauses that are ancillary to merger transactions, joint ventures or strategic alliances”. Thus, if the example described above is legitimate, the changes to the Act should not pose any problems. However, the Guidelines also provide that “the Bureau may start an investigation under subsection 45(1.1), where those clauses are clearly broader than necessary in terms of duration or affected employees, or where the business agreement or arrangement is a sham” (Emphasis added). As a result, even if the ancillary restraints defence is potentially available, the Competition Bureau will be examining how reasonable the restraints on workers are. This is an important consideration for businesses entering into such agreements.
Interestingly, the Guidelines also indicate that the Competition Bureau interprets the new provisions as requiring reciprocity. That is, if an agreement between two unrelated employers restrains the actions of only one of the employers, then these new provisions will not apply. As an example, a temporary placement agency and its client may agree that the client will not hire the workers of the agency. According to the Guidelines, this would not constitute an offence. Note, however, that other laws, especially employment standards legislation, may outlaw such restraints.
The penalties for breaching the new Competition Act provisions are up to 14 years in prison, a fine (to be determined by the courts) or both. As such, businesses entering into these types of agreements, and their managers, should seek legal advice.
