Canada’s Competition Act to Ban Wage-Fixing and No-Poach Agreements

Jordan: Hi, I’m Jordan Virtue.

Nathan: And I’m Nathan Kanter, and this is the Blakes Sound Business podcast.

Jordan: In today’s episode, we focus on recent amendments to Canada’s Competition Act that will make it a criminal offence for employers to enter into wage-fixing and no-poach agreements.

Nathan: Here to tell us more about these new provisions and what they mean for businesses are Blakes lawyers David Dueck and Julia Potter from our Competition, Antitrust & Foreign Investment group.

[music]

Nathan: Julia, a lot of businesses have been asking questions about the recent amendments to the Competition Act relating to wage-fixing and no-poach agreements. Can you tell us more about that?

Julia: Absolutely. The Competition Act was amended just this last June to include a new criminal offence. What this new provision does is criminalize agreements among employers that maintain, decrease or control wages or other terms of employment or that restrict the hiring or solicitation of each others’ employees. This is quite a significant development particularly since non-solicit and no-poach provisions are very common and are frequently used in non-disclosure agreements, transaction agreements, consulting agreements and so on.

Like the other criminal conspiracy offences in the Competition Act, these employer agreements will be subject to a per se illegality standard, which means that the conduct is illegal regardless of whether there is any harm to competition that might be resulting from the conduct or the agreement.

When it comes to timing, though the amendments were enacted last June, this new criminal provision will not be in force until June 23 of 2023. And that delay is meant to give businesses time to prepare for the coming-into-force of the new provision.

Nathan: What are the repercussions for non-compliance?

Julia: Because this is a criminal offence, the penalties are significant. They can include imprisonment for a maximum of 14 years, the payment of a fine, and there’s no cap or ceiling on that fine and could also potentially include the payment of private damages if there are class actions or other private actions that arise.

Jordan: David, what are some issues Canadian businesses could face as they seek to remain compliant with the law?

David: Well, the new wage-fixing and no-poach provisions are potentially very broad in scope given how they’re drafted.

First of all, the provisions potentially apply to any agreements between employers even if those employers are not actually competitors. And secondly, they apply not only to agreements over wages and salaries, but also over any terms and conditions of employment.

This is quite vague, and arguably, this could even apply to agreements between employers over minimum working standards or shared diversity initiatives. And the broad scope of this amendment is particularly significant given the potential consequences.

This is a criminal provision, and the provision will be subject to a private right of action on behalf of affected parties, including potential class actions.

Nathan: Julia, are there any legal defences that might apply to this conduct?

Julia: There is a defence called the ancillary restraints defence that will be available in respect of the new criminal offence, much like it is for the other criminal conspiracy provisions of the Competition Act. And this defence applies when the parties to the agreement can establish on a balance of probabilities that the restraint — so, for example, if it’s a non-solicit provision — is ancillary to a broader or separate agreement that includes the same parties.

The restraint is directly related to and reasonably necessary for giving effect to the objective of that broader agreement, and finally, that the broader agreement itself is not illegal.

Jordan: David, what issues might parties face in seeking to rely on this defence?

David: The ancillary restraints defence applies to agreements that are connected and reasonably necessary to give effect to a broader agreement that is not itself anti-competitive. But, of course, the key question is what does reasonably necessary mean in any given situation?

For example, two parties might not want to closely collaborate with one another on a project if they are concerned the other party would try to poach its employees as they interact. So, a non-solicit clause might then be reasonably necessary for that collaboration to take place. But this is not always going to be clear, and the ancillary restraints defence has never been judicially considered.

Nathan: Julia, will any further guidance be provided?

Julia: So, as David alluded to, in a recent speech, the Commissioner of Competition confirms that the Competition Bureau, which is the government body that enforces the Competition Act, is planning to provide stand-alone guidance that will give some insights into how the Bureau plans to enforce this new wage-fixing or no-poach provision.

There’s no stated timeframe for the issuance of that guidance, though it is expected to be released before the provision comes into force in June of next year.

That guidance will be quite useful for assisting businesses in understanding how the Competition Bureau may interpret and choose to enforce the new provision, although its important to recognize that this guidance will not be law.

Nathan: Can you share some steps businesses should take to ensure they avoid penalties?

Julia: If you have agreements that will still be in force as of June 23, 2023, and those agreements include provisions on wages or other terms of employment or might include non-solicit or no-poach provisions, these will need to be reviewed in light of the new criminal offence and preferably with the benefit of that guidance we are expecting from the Competition Bureau. This will require a review of pre-existing agreements that remain in force as well as new agreements that you are entering into now and in the future.

The ancillary restraints defence will need to be evaluated on a case-by-case basis to determine whether a provision or an agreement will be offside the Competition Act, and if you’re of the view that it might be or it would be offside the Competition Act, then there are a few options.

One would be to terminate the agreement entirely. Another is to renegotiate the contract or the specific term in the contract, and one example of that might be to narrow the scope or the duration of a non-solicit provision in order to provide some additional comfort that the ancillary restraints defence is more likely to apply. And if you’re dealing with a counterparty that is not willing to terminate the agreement or not willing to renegotiate it, then you can also formally alert the counterparty that you consider the agreement or the provision to be offside the Competition Act and will no longer be enforcing it.

Jordan: David, are there any other amendments to the Competition Act that may be relevant for businesses?

David: So, I think there are four additional changes worth highlighting.

First, parties can now bring private actions for alleged abuse of dominance. And the abuse of dominance provisions can apply where a dominant player in an industry engages in anti-competitive conduct that is directed at their competitors or otherwise intended to harm competition. Previously, only the Commissioner of Competition could bring these cases before the tribunal, but now private parties can bring them directly to the tribunal themselves.

The second major change is that they are announcing significantly higher financial penalties for certain conduct under the act. There is now no cap whatsoever on fines for criminal violations. In addition, the potential fines for abuse of dominance and deceptive marketing practices have significantly increased. Previously the maximum fine was only C$10-million for a first-time offence or C$15-million for subsequent offences, but now fines can be up to three times the financial benefits derived from the conduct, or if this can’t be determined, then up to 3% of annual revenues worldwide.

The third major change is that there are now specific criminal and civil provisions to address the practice of drip-pricing representations. This is where someone advertises a price that is ultimately not obtainable due to additional mandatory charges or fees. For example, you might go to buy something on a website, see a certain price and only after you’ve reached the checkout page and entered all your credit card information do you see a totally new set of fees for the first time. This type of conduct can constitute false or misleading advertising.

And lastly, there’s now a new anti-avoidance rule for merger notifications that applies when deals are structured a certain way solely to avoid merger notification. If that’s the case, a merger notification will still be required.

[music]

Jordan: David and Julia, thank you for joining us today. You ‘ve certainly given employers plenty of food for thought.

Nathan: Listeners, for more information on our Competition, Antitrust & Foreign Investment group and our podcast, please visit blakes.com.

Jordan: Until next time, keep well.