Despite the need to stay competitive, control costs and retain talented employees at the head of their field, employers or representatives on their behalf may face serious fines or lengthy imprisonment for entering into wage-fixing and no-poach agreements with other employers. On June 23, 2023, the new s. 45(1.1) amendment to criminal conspiracy provisions of the Competition Act, R.S.C., 1985, c. C-34, (the “Act”) will come into effect and have far reaching implications for employers.
Employer Practices Prohibited as of June 23, 2023
The purpose of the new provision under the Act is to prevent restraints on competition that are not fashioned to further a reasonable and legitimate joint venture, collaboration or alliance.
A wage fixing agreement is broadly defined by the Competition Bureau and includes agreements that fix, maintain, control or decrease salaries and/or terms and conditions of employment associated with the job responsibilities, benefits and policies, such as job descriptions, allowances (i.e., per diem and mileage reimbursements), non-monetary compensation, working hours, location and non-compete clauses. The focus is on employers controlling terms that would influence an individual’s decision to accept an employment contract or continue working under it. Similarly, no poach agreements are also broadly defined by the Competition Bureau, and include agreements that, amongst many other impermissible impacts, restrict the communication of job opening information and influence hiring policies.
Thus, employers could have potential exposure to criminal charges under many different types of agreements, corporate policies and practices, which may not be apparent without thorough consideration and investigation. Even affiliation and membership in an industry or professional organization, may give rise to exposure.
This new criminal conspiracy provision has stark penalties. If an employer, or representative on an employer’s behalf, contravenes s. 45(1.1) and is convicted, they are subject to:
- imprisonment for up to fourteen (14) years;
- a fine to be set at the discretion or the court; or
Agreements need not be written or express to contravene s. 45 (1.1) of the Act. Courts can infer such agreements from indirect evidence, for example, informal communications and information sharing. If an offence has been committed pursuant to s. 45 (1.1) of the Act criminal charges could be recommended.
Exceptions and Defences to the Prohibitions
There are exceptions and defences to the no-poach and wage fixing prohibitions to ensure that legitimate and reasonable collaboration between specific entities is not swept up by the provision in an overly broad manner. The exceptions and defences are as follows:
- i) Collective Bargaining Exemption: The provision does not apply to agreements reached or conduct during collective bargaining.
- ii) Ancillary Restraints Defence: It is available when certain permissible business transactions or collaborations demand restraints on competition to make them efficient and in some circumstances possible. Further, there will be no contravention of the provision where a party can demonstrate, on a balance of probabilities, that:
- (a) the restraint is ancillary to, or flows from, a broader or separate agreement that includes the same parties;
- (b) the restraint is directly related to and reasonably necessary for achieving the objective of the broader or separate agreement referred to in (a); and
- (c) the broader or separate agreement referred to in (a), when considered without the restraint, does not violate s. 45(1.1).
- (iii) Affiliation Exception: The provision and new offences are not applicable to affiliated organizations or companies.
Of note, employers’ who engage in conduct, or enter in an agreement, that violate the wage fixing and non-poach agreement provision but come forward before their counterpart and agree to cooperate, may qualify for immunity from prosecution.
Employers should evaluate agreements, practices, policies and even participation in industry and professional associations to ensure that they are complying with s. 45(1.1) of the Act before June 23, 2023. Since s. 45(1.1) is new and there are no comparable precedents, employers do not want to risk finding out the hard way that Canadian courts intend to stringently enforce penalties for wage-fixing and no-poach prohibitions that are on the higher end of the spectrum.
The foregoing is for informational purposes only, and should in no way be relied upon as legal advice. For legal advice tailored to your circumstances and business, please contact any of SOM LLP’s lawyers by email or telephone.