New Competition Act Provisions Could Handcuff Employers – Figuratively & Literally

On June 23, 2023, the employment landscape is set to change in Canada, as new criminal provisions in the Competition Act (the “Act”) come into force. These provisions prohibit wage-fixing and no-poach agreements under certain circumstances, and create the potential for significant criminal liability and financial penalties for employers and their senior officers.

While these provisions were announced in June 2022, the Competition Bureau (the “Bureau”) has only recently released its much-anticipated Enforcement Guidelines on Wage-Fixing and No Poaching Agreements (the “Guidelines”), shedding some light on the new provisions and how they will be enforced.

Below is a quick breakdown of key questions employers should be asking about these new provisions.

What are the new provisions?

The new criminal provisions prohibit agreements between non-affiliated employers to:

1. fix, maintain, decrease or control salaries, wages or terms and conditions of employment; or
2. Not hire or solicit each other’s employees.

The provisions will apply to agreements entered into on or after June 23, 2023, and to conduct that reaffirms or implements older agreements which contravene the provisions.

The new rules apply regardless of whether there is any non-competitive impact in these agreements, or whether the employers are competitors in the same industry. In fact, the vary act of entering into these types of agreements would be enough to constitute an offense—regardless of whether the agreement was actually implemented.

An offense may be made out without the existence of a written agreement. Determining the existence of an unlawful agreement will turn on the specific facts and whether the evidence establishes a “meeting of the minds”—this may be assessed based on circumstantial evidence and without direct evidence of communication between the parties. However, given the criminal nature of these provisions, the existence of an unlawful agreement must be proven beyond a reasonable doubt.

Who do these new rules apply to?

The rules apply to non-affiliated employers. Agreements between “affiliated employers” (as defined in the Act) are permissible.

The definition of ‘employer’ in the Guidance is broad and includes individuals such as directors, agents, and some human resource employees. Individuals entering into a prohibited agreement may be subject to prosecution, as would the organizations the individuals were acting on behalf of, if those individuals are acting as “senior officers” of an organization, as the term is defined in the Criminal Code.

What are the penalties?

The potential penalties for breaching the new provisions are substantial and, as of June 23, 2023, include a maximum imprisonment of up to 14 years, a fine to be determined at the discretion of the court (with no statutory limit), or a combination of both. Employers found to be in breach also risk exposure to private legal action for damages—including class actions.

Are there are any defences or exceptions?

Besides the exception for affiliated employers discussed above, there are other circumstances where the new provisions will not apply:

• Where otherwise unlawful agreements are entered into between employers for the purpose of collective bargaining. For example, the unaffiliated members of an employers association might enter into a permissible no-poach or wage-fixing agreement for bargaining purposes.
• Where the ancillary restraints defence applies – i.e. where an employer can prove on a balance of probabilities that the unlawful agreement is ancillary to a broader or separate legitimate agreement that includes the same parties, and is directly related to, and reasonably necessary for giving effect to, the objective of the broader or separate agreement. For example, no-poach agreements that are ancillary to merger transactions or franchise agreements are likely permissible unless they are clearly broader than necessary in terms of duration or effected employees, or constitute a “sham” intended to circumvent the new provisions.

How do employers ensure they’re compliant?

A first step for employers is to review any existing agreements for clauses that may run afoul of the new provisions. This is particularly important for franchiser – franchisee agreements that could include clauses related to suppliers, corporate offices, and storefronts.

Next step would be to update any templates or standard documents to ensure they are compliant. This is particularly important for employers that regularly engaging in information-sharing or benchmarking activities with other employers in their industry. Given the rapidly approaching effective date, this should be done ASAP so as not to unwittingly introduce risk into employers’ standard processes.

Finally, training for key employees is essential. Under the new provisions, these individuals’ actions could invite criminal prosecution against themselves personally and against the employer itself. It is essential that all applicable employees understand what they can and cannot do in this rapidly evolving landscape.

Fortunately, a trusted legal partner can help employers to navigate all these potential pitfalls.

For more information on these new provisions or to discuss a review of your current contracts and practices, please contact Matthew E. McCarthy of our employment group.