New insights on Canada’s wage-fixing and no-poaching law

The Competition Bureau has released draft guidelines (the Guidelines) setting out its planned enforcement approach to the recent Competition Act amendment criminalizing wage-fixing and no-poaching agreements. The Guidelines provide helpful insights for Canadian employers but also leave several important questions unanswered.

What you need to know

• Impacts all employers. As of June 23, 2023, it will be a criminal offence for employers to agree to fix, maintain, decrease, or control salaries, wages or other terms and conditions of employment, or to not solicit or hire each other’s employees. The offence applies to all employers, regardless of whether they are competitors, and regardless of whether the agreement has any anti-competitive effect.
• Pre-existing agreements protection. There is no retroactive liability or criminality for non-compliant agreements that are terminated or expire prior to June 2023 or that are not enforced or reaffirmed after that date.
• Low bar to trigger. The new law applies to informal understandings and can be inferred from information sharing or information monitoring. HR information should now be viewed as competitively sensitive and not shared directly with other employers.

Other key insights from the guidelines

• Employer interpreted broadly. An “employer” includes directors, officers, as well as agents of employers such as employees, including HR professionals. Employees who enter into illegal agreements may therefore be viewed as “employers” and be subject to prosecution.
• Terms and conditions elaborated upon. “Terms and conditions” include the responsibilities, benefits and policies associated with a job (e.g., job descriptions, allowances, non-monetary compensation, working hours, etc.), as well as anything else that could affect a person’s decision to enter into or remain in an employment contract.
• Non-solicitation agreements must be mutual to be offside. One-way no-poaching agreements are not problematic unless there is more than one interconnected one-way agreement. Mutual non-solicitation agreements between employers that limit opportunities for their employees to be hired by each other will be caught, including restricting the dissemination of job opening information and adopting no-poaching hiring mechanisms.
• Ancillary restraints defence (ARD) protection. Limited defences are available, the most important of which is the ARD. Under the ARD, a restriction will be legal if it is a component of an otherwise legal agreement and directly related to, and reasonably necessary for giving effect to, that agreement. We expect this defence to be relied on frequently by employers.
• M&A agreements safe. The Guidelines affirm that the ARD will generally apply to employee-related restrictions in agreements supporting mergers, joint ventures and strategic alliances.
• Franchisor/franchisee agreements potentially not safe. Unaffiliated franchisors/franchisees cannot readily rely on the ARD to protect employee restraints. Agreements between franchisees will likely not be protected. Agreements between franchisors and their franchisees require a “case-specific” analysis but will usually be legal.

Questions and uncertainty remain

• Who is an “employee”? While the Guidelines confirm that an employment relationship is required, it remains unclear who is an “employee” or when an “employer-employee” relationship exists. The Guidelines provide that this is a fact driven analysis dependent “on the laws and circumstances under which the relationship was entered into”. The subjectivity derives from different common law interpretations of “employee” across Canada as a matter of provincial law, adding a layer of complexity to applying the new federal law.
• How to interpret the ARD? The Guidelines do not specify what is a reasonably necessary restraint. In practice, this will likely depend on the commercial reasons behind the agreement, the scope of any restriction and whether a court is likely to enforce the restraint as a matter of employment law. The Guidelines suggest that enforcers may second guess contracting parties’ commercial decisions. Considerable uncertainty remains.
• Is information gathering a problem? The Guidelines appear to suggest that “taking steps to monitor each other’s employment practices” may be sufficient to prove an agreement was reached, but it is unclear how monitoring can result in an agreement.

What’s next

We expect considerable commercial disruption as employers adjust to the new law. Many employers regularly communicate with each other on matters of mutual interest, such as back-to-work policies or health and safety measures. After June, such communications will bring with them the risk of criminal sanction. Given the prevalence of non-solicitation provisions in ordinary course commercial arrangements and the dearth of clear guidance on reasonable restrictions, employers are also likely to have to over-compensate by taking an extremely conservative approach to contracting practices in order to minimize contravention risk. Interested parties may provide comments on the Guidelines on or before March 3, 2023.