On January 18, 2023, the Competition Bureau published draft enforcement guidelines on wage-fixing and no poaching agreements, inviting interested parties to provide their comments no later than March 3, 2023. The draft guidelines reflect the Bureau’s interpretation of and proposed approach to enforcing the criminal prohibition of wage-fixing and no poaching agreements, which will come into force on June 23, 2023.

The Government of Canada passed significant amendments to the Competition Act (the “Act”) in June 2022 via the Budget Implementation Act, 2022, No. 1 (the “BIA”). While the majority of the BIA amendments came into force upon royal assent, the amendment to the criminal cartel provision in section 45 of the Act does not come into force until June 23, 2023. Shortly after the BIA came into force, the Competition Bureau (“Bureau”) promised to review and update its enforcement guidelines.

Background

Prior to the BIA amendments, “buy-side” agreements were not within the scope of the criminal cartel provision in Canada, as Parliament explicitly removed buy side agreements from the cartel provision in the amendments made to the Act in 2009. In November 2020, the Bureau released a statement confirming that the criminal provision of the Act did not apply to wage-fixing and no poaching agreements in response to questions generated by enforcement actions in the United States and domestic commentary in Canada arising from pandemic “hero pay” policies. This in turn led the federal Standing Committee on Industry and Technology to call for wage-fixing and no poaching agreements to be added to the Act’s criminal cartel prohibition in a report issued in June 2021.

Currently the Bureau can review wage-fixing and no poaching agreements under the civil competitor collaboration provision. The civil provision requires the Bureau to prove, on a balance of probabilities, that an agreement results in a substantial lessening or prevention of competition or is likely to do so. When the criminal prohibition on wage-fixing and no poaching agreements comes into force, these agreements will be per se illegal, requiring proof beyond a reasonable doubt, and individual and businesses could subject to significant criminal penalties upon conviction.

The Draft Enforcement Guidelines

The draft guidelines provide an overview of the Bureau’s proposed enforcement approach to wage-fixing and no poaching agreements, as well as some insight into the Bureau’s interpretation of the new provision. While the draft guidelines are generally consistent with the existing Competitor Collaboration Guidelines, there are some important differences and other notable features for wage-fixing and no poaching agreements:

• Broader application. Unlike the sell-side criminal provision of the Act, which only applies to certain agreements between competitors, the criminal prohibition against wage-fixing and no poaching agreements applies to these agreements when they are made between unaffiliated employers, which may or may not be competitors.
• Individual liability extends to human resource professionals. The draft guidelines explicitly identify human resource professionals as employees who could make an agreement which would contravene the new provision. Individuals who make a wage-fixing or no poaching agreement may be subject to prosecution (as may be their companies too).
• Information sharing. The draft guidelines advise employers to take care when sharing information with each other in the course of collaborative activities, such as the benchmarking of employment terms. Practices like this, often referred to as “facilitating practices”, may lead the Bureau to infer that there is an agreement between employers. This is already true in the case of “sell-side” agreements – benchmarking is certainly possible in various contexts but best practices in benchmarking should be observed to mitigate legal risk.
• Wage-fixing agreements. Prohibited wage-fixing agreements include agreements to fix, maintain, decrease or control salaries or wages, as well as other terms and conditions of employment. The draft guidelines indicate that the Bureau’s enforcement will generally be limited to agreements with respect to terms and conditions of employment that could affect a person’s decision to enter into or remain in an employment contract.
• No poaching agreements. The draft guidelines indicate that the Bureau will not consider one-sided agreements to not poach another company’s employees an offence, as the provision refers to “each other’s employees”. However, where there are multiple agreements which result in two or more employers agreeing not to poach each other’s employees, the Bureau may take enforcement action. This is a very important clarification as it should result in no enforcement action being taken in respect of employment-related provisions included within customary one-sided confidentiality agreements or non-disclosure agreements.
• Ancillary restraints defence. The only statutory defence discussed in detail in the draft guidelines is the ancillary restraints defence, which provides a defence to the criminal provisions of the Act when certain business transactions or collaborations require restraints on competition to make them efficient, or even possible. The draft guidelines explicitly recognize that non-solicitation clauses are often significant in merger transactions and confirm that the Bureau will generally not assess wage-fixing or no-poaching clauses that are ancillary to merger transactions, joint ventures or strategic alliances under the criminal track, unless they are clearly broader than necessary or the merger, joint venture or strategic alliance is a sham.

Conclusion

While the Bureau has requested public comment on the draft guidelines, typically when it does so the final guidelines are not materially different from the draft. Businesses should be aware of the imminent criminal prohibition on wage-fixing and no poaching agreements and review their human resources practices closely to determine that they do not have such agreements. We will be watching closely to see whether any further changes are made in response to comments received by the Bureau before the new guidelines are finalized.