Competition Bureau Publishes Draft Guidance on Wage-Fixing and No-Poach Agreements

On January 18, 2023, Canada’s Competition Bureau (Bureau) published, in draft, highly anticipated guidance (Draft Guidance) outlining its views on the new criminal prohibition against agreements or arrangements between unaffiliated employers to fix wages or other terms and conditions of employment and to not hire or solicit each other’s employees. The Draft Guidance aims to provide more clarity on the Bureau’s enforcement approach to the new criminal provision, which comes into force on June 23, 2023. For more background on these changes and the key takeaways for businesses, see our November 2022 podcast episode, Canada’s Competition Act to Ban Wage-Fixing and No-Poach Agreements and our April 2022 Blakes Bulletin: Proposed Competition Law Amendments in Canada Set to Significantly Expand the Scope of the Competition Act.

Interested parties are invited to provide feedback on the Draft Guidance by March 3, 2023, after which the Bureau will presumably finalize the guidelines.

SUMMARY OF THE DRAFT GUIDANCE

There are a number of important elements contained in the Draft Guidance relevant to businesses that operate in Canada, including:

• New and Existing Agreements Captured. The Draft Guidance suggests that the new criminal prohibition will apply to agreements made on or after June 23, 2023, and to “conduct that reaffirms or implements” agreements in existence as of that date.

• Sharing of Sensitive Employment Information Can Raise Concerns. The Draft Guidance cautions that inappropriate sharing of sensitive employment information could raise concerns. The legislation requires that there be an agreement or arrangement to constitute a contravention. However, the sharing of sensitive employment information or monitoring each other’s employment practices, when combined with parallel conduct, may support an inference of an illegal wage-fixing or no-poach agreement.

• Wage-Fixing Prohibition Casts a Wide Net. Agreements between unaffiliated employers to fix, maintain, decrease or control salaries, wages or “terms and conditions of employment” are captured by the new provision. The Draft Guidance notes that “terms and conditions of employment” are those that “could affect a person’s decision to enter into or remain in an employment contract” and may include job descriptions, working hours or work location, among others.

• One-Way No-Poach Arrangements Permissible. According to the Draft Guidance, reciprocal agreements between two or more employers not to hire or solicit “each other’s” employees are captured by the new provision, while an agreement by one employer to not poach another’s employees is not. However, multiple one-way agreements that result in two or more employers agreeing not to poach each other’s employees may raise concerns.

• Ancillary Restraints Defence Applies. The ancillary restraints defence may save wage-fixing or no-poach agreements from liability where the agreement is directly related to and reasonably necessary for giving effect to a broader or separate agreement that is not itself an illegal agreement. The Draft Guidance confirms that the Bureau’s approach to the ancillary restraints defence will be consistent with the approach outlined in the Bureau’s Competitor Collaboration Guidelines.

• Reasonable Transaction-Related Clauses Unlikely to Raise Concerns. Wage-fixing and no-poach agreements entered into in connection with bona fide merger transactions, joint ventures or strategic alliances are unlikely to be problematic, provided that their scope is not broader than necessary in the circumstances.

• Franchise Agreements Fall Under the Scope of the New Provision. Franchisors and franchisees are generally not affiliated with one another. Accordingly, no-poach provisions in franchise agreements that prohibit franchisors and franchisees from hiring each other’s employees or employees of other franchisees could raise concerns, depending on the application of the ancillary restraints defence.

IMPORTANT TAKEAWAYS FOR BUSINESSES

• Businesses should ensure that agreements they enter into with unaffiliated suppliers, customers and other third-party employers (regardless of whether they are competitors) on or after June 23, 2023, are not offside the new wage-fixing/no-poach provision and consider updating template agreements accordingly. 

• Businesses should implement protocols to ensure that their conduct related to wage-fixing or no-poach provisions in existing agreements complies with the new legal realities once the new provision is in effect.

• One-way no-poach provisions where one party agrees not to hire or solicit another party’s employees appear unlikely to raise concerns with the Bureau. However, businesses should be mindful that the guidelines are not binding and the Bureau or private parties may still bring actions under the new provision.

• Wage-fixing and no-poach agreements entered into in connection with bona fide transaction agreements appear unlikely to raise concerns provided that the scope of such agreements is not broader than necessary.

For more information, please contact any member of our Competition, Antirust & Foreign Investment group.