Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Canada publishes wage-fixing and no-poach Enforcement Guidelines, (May 30, 2023)

By Peter Reap, J.D., LL.M.

The guidelines clarify the Competition Bureau’s approach to new provisions coming into force next month.

Canada’s antitrust enforcement agency, the Competition Bureau, today published its wage-fixing and no-poaching Enforcement Guidelines. When 2022 amendments to the conspiracy provision (section 45) of the Canada’s Competition Act become effective on June 23, 2023, wage-fixing and no-poaching agreements will become illegal. The guidelines aim to provide businesses with clarity regarding the Bureau’s approach to enforcing the new provisions.

Specifically, the new Subsection 45(1.1) will make wage-fixing and no poaching agreements (or non-solicit and no-hire agreements) per se illegal. The new provisions require proof beyond a reasonable doubt and are subject to serious criminal penalties. A person found guilty of an offence under subsection 45(1.1) may be imprisoned for up to 14 years or subjected to a fine at the discretion of the court, or both. These Enforcement Guidelines describe the Bureau’s approach to enforcing new subsection 45(1.1) and should be read together with the Bureau’s Competitor Collaboration Guidelines (the CCGs).

Wage-fixing agreements. Paragraph 45(1.1)(a) will prohibit agreements between unaffiliated employers:

• to fix, maintain, decrease or control salaries;

• to fix, maintain, decrease or control wages; and

• to fix, maintain, decrease or control terms and conditions of employment, where “terms and conditions” include the responsibilities, benefits and policies associated with a job. This may include job descriptions, allowances such as per diem and mileage reimbursements, non-monetary compensation, working hours, location and non-compete clauses, or other directives that may restrict an individual’s job opportunities. The Bureau’s enforcement generally is limited to those “terms and conditions” that could affect a person’s decision to enter into or remain in an employment contract.

No-poaching agreements. Paragraph 45(1.1)(b) will prohibit agreements between unaffiliated employers to not solicit or hire each other’s employees. When an agreement limits an employee’s job opportunities, the Bureau may examine whether the limitation is in furtherance of a no-poaching agreement.

Pre-existing agreements. With respect to pre-existing agreements, the Bureau noted that it is unlikely to find a wage-fixing or no-poaching agreement problematic when the parties take no steps to reaffirm or implement the restraint on or after June 23, 2023. At least two parties must reaffirm or implement the restraint for the Bureau to establish the requisite consensus or “meeting of the minds”.

“Employers.” The Bureau also pointed out that in contrast to subsection 45(1), which applies only to competitors, subsection 45(1.1) applies to agreements involving two or more unaffiliated employers, regardless of whether they compete in the supply of a product. “Employers” includes directors, officers, as well as agents or employees, such as human resource professionals. For example, an agreement between an officer of a corporation and a director of another company is considered to be an agreement between employers under subsection 45(1.1).

Ancillary restraints defense. The Bureau also stated that it distinguishes between naked restraints and "ancillary restraints." Subsection 45(4) provides a defense for ancillary restraints, and the ancillary restraints defense (the ARD), as described in the CCGs, is available when certain desirable business transactions or collaborations require restraints on competition to make them efficient, or even possible. The guidance provides further details on what types of agreements the Bureau will view as eligible for the ARD.

Franchising example. In one example, a hypothetical franchising situation is analyzed:

“Company A is in the business of franchising fast food restaurants across Canada. Company A and each franchisee spend a lot of money and time training new employees. To lower their training costs, Company A and each franchisee separately agree not to poach each other’s employees, as well as those of other franchisees. The franchisees have no agreements directly between them. However, each franchisee has an understanding that the franchisor will enter into a no-poaching agreement with every franchisee within the franchise system.”

The analysis provided by the guidelines states that the no-poaching agreements in this franchising example likely would raise a concern under paragraph 45(1.1)(b). Ordinarily, franchisors and franchisees are not affiliated and employers in franchise relationships cannot rely on the Act’s affiliation definition. Further, the paragraph says that it is illegal for two or more employers to agree to not solicit or hire each other’s employees. Since the franchisees and Company A are employers, paragraph 45(1.1)(b) applies. It does not matter whether the franchisees compete with each other or with Company A in the supply of a product, according to the guidelines’ analysis. Additional guidance sheds light on the implications of the understanding between the franchisees in such a situation, and another franchise scenario.

Other exemptions, defenses, immunity. The guidance discusses other possible available exemptions, defenses, and the Bureau’s Immunity and Leniency Programs. It also provides other hypothetical examples.

Boswell comments. Matthew Boswell, Canada’s Commissioner of Competition, said: “The wage-fixing and no-poaching amendments coming into force is an important step in the ongoing modernization of Canada’s competition law. With these enforcement guidelines, we’re providing businesses with the certainty and predictability they need to ensure that they’re in full compliance with the law."

News: Antitrust FranchisingDistribution