Enforcement guidance on wage-fixing and no poaching agreements

Draft for Public Consultation

These guidelines are intended for public consultation and describe the Bureau’s approach to enforcing subsection 45(1.1), supplementing the Competitor Collaboration Guidelines (the CCGs). In the event of any inconsistency, only the information found in these guidelines applies to subsection 45(1.1).

This consultation takes place between January 18, 2023, and March 17, 2023 (11:59 pm Pacific time). Interested parties are invited to submit their views on the guidelines by completing our online feedback form.

On this page:

Preface

The Competition Bureau is an independent law enforcement agency responsible for the administration and enforcement of the Competition Act. The Act is a law of general application that establishes basic principles for the conduct of business in Canada. The Bureau contributes to the prosperity of Canadians by protecting and promoting competitive markets and enabling informed consumer choice.

In June 2022, the Government of Canada made changes to the Act, including adding subsection 45(1.1) to the existing criminal conspiracy provisions. This new subsection protects competition in labour markets by prohibiting agreements between employers to fix wages and restrict job mobility. Like agreements between competitors related to price-fixing, market allocation and output restrictions, wage-fixing and no-poaching agreements undermine competition and the efficient allocation of resources. Maintaining and encouraging competition among employers results in higher wages and salaries, as well as better benefits and employment opportunities for employees.

Subsection 45(1.1) comes into force on June 23, 2023. As of that date, it will be an offence for unaffiliated employers to agree to fix, maintain, decrease or control wages or other terms of employment, or to not solicit or hire each other’s employees. The provision will apply only to new agreements entered into by employers on or after June 23, 2023, as well as to conduct that reaffirms or implements older agreements.

It is the responsibility of the Commissioner of Competition and the Bureau to investigate a matter that involves an offence under the Act. Where there is evidence of an offence, the Commissioner may refer a matter to the Director of Public Prosecutions (the DPP) for such action as it may wish to take. These guidelines are not intended to restate the law or to constitute a binding statement of how the Commissioner or the DPP will exercise discretion in a particular situation. The respective enforcement and prosecutorial decisions of the Commissioner and the DPP, and the ultimate resolution of issues, will depend on the particular circumstances of the matter in question.

The Bureau may revisit certain aspects of these guidelines, depending on circumstances and decisions of the courts.

1. What is prohibited

1.1 Overview

The Bureau can review wage-fixing and no-poaching agreements under section 90.1 of the Act, the civil agreements provision. Under section 90.1, the Bureau must show, on a balance of probabilities, that an agreement results in a substantial lessening or prevention of competition or is likely to do so. When subsection 45(1.1) comes into force, wage-fixing and no-poaching agreements will be per se illegalFootnote 1, requiring proof beyond a reasonable doubt, and subject to significant criminal penalties.

Subsection 45(1.1) is directed at “naked restraints” on competition, that is, restraints on wages or job mobility that are not implemented in furtherance of a legitimate collaboration, strategic alliance or joint venture.

The new subsection provides as follows:

45 (1.1) Every person who is an employer commits an offence who, with another employer who is not affiliated with that person, conspires, agrees or arranges

  1. to fix, maintain, decrease or control salaries, wages or terms and conditions of employment; or
  2. to not solicit or hire each other’s employees.

The Bureau’s approach to its enforcement of the new provision is described below.

1.2 General principles

1.2.1 Affiliation

The subsection applies to agreements between unaffiliated employers. It does not apply to agreements entered into only by affiliated employersFootnote 2. For example, wage-fixing or no-poaching agreements between two or more corporate entities that are controlled by the same parent company do not violate the provision.

1.2.2 Employers

In contrast to subsection 45(1), which applies only to competitors, subsection 45(1.1) applies to agreements involving two or more unaffiliated employers, regardless of whether they compete in the supply of a productFootnote 3. “Employers” includes directors, officers, as well as agents or employees, such as human resource professionals, so that, for example, an agreement between an officer of a corporation and a director of another company is considered to be an agreement between employers under subsection 45(1.1). In this circumstance, the individuals who entered into the agreement may be subject to prosecutionFootnote 4. Further, corporations may be subject to prosecution as a result of an agreement between their respective employees if those employees are acting as senior officersFootnote 5.

1.2.3 Employment relationship

The subsection applies to certain agreements between unaffiliated employers regarding their employees. Whether an employer-employee relationship exists between parties will depend on the laws and circumstances under which the relationship was entered into.

1.2.4 Information sharing

“Conscious parallelism” is when a business acts independently with awareness of the likely response of its competitors or in response to the conduct of its competitors. The Bureau does not consider mere conscious parallelism a violation of section 45Footnote 6. However, parallel conduct coupled with facilitating practices, such as sharing sensitive employment information or taking steps to monitor each other’s employment practices, may be sufficient to prove that an agreement was concluded. Under subsection 45(3), such conduct could result in an inference by the Bureau of an agreement between the parties in violation of subsection 45(1.1).

Employers should take care when sharing information with each other in the course of collaborative activities, such as the benchmarking of employment terms, to ensure that the conduct does not raise concerns under subsection 45(1.1) of the ActFootnote 7.

2. Types of prohibited agreements

2.1 Wage-fixing agreements

Paragraph 45(1.1)(a) of the Act prohibits agreements between unaffiliated employers “to fix, maintain, decrease or control salaries, wages or terms and conditions of employment.” Consequently, the following agreements between employers are prohibited under the provision:

  • agreements to fix, maintain, decrease or control salaries;
  • agreements to fix, maintain, decrease or control wages; and
  • agreements to fix, maintain, decreaseFootnote 8 or control terms and conditions of employment, where “terms and conditions” include the responsibilities, benefits and policies associated with a job. This may include job descriptions, allowances such as per diem and mileage reimbursements, non-monetary compensation, working hours, location and non-compete clauses, or other directives that may restrict an individual’s job opportunities. The Bureau’s enforcement generally is limited to those “terms and conditions” that could affect a person’s decision to enter into or remain in an employment contract.

2.2 No-poaching agreements

Paragraph 45(1.1)(b) of the Act prohibits agreements between unaffiliated employers to not solicit or hire each other’s employees. This provision prohibits all forms of agreements between employers that limit opportunities for their employees to be hired by each other. Examples of such limitations include restricting the communication of information related to job openings and adopting hiring mechanisms, such as point systems, designed to prevent employees from being poached or hired by another party to the agreementFootnote 9.

Paragraph (45)(1.1)(b) restricts the offence to those instances where employers agree or arrange to not solicit or hire “each other’s” employees. In other words, it is not an offence when only one party agrees to not poach another’s employees. However, when there are separate arrangements that result in two or more employers agreeing to not poach each other’s employees, the Bureau may take appropriate enforcement action. Employers should note that in determining whether an agreement exists, the Bureau will consider whether the parties to the alleged agreement or arrangement reached a consensus, either explicitly or tacitly.

3. Defences

3.1 Ancillary restraints defence

The Bureau distinguishes between naked restraints and "ancillary restraints". Subsection 45(4) provides a defence for ancillary restraints. As described in the CCGs, the ancillary restraints defence (the ARD) is available when certain desirable business transactions or collaborations require restraints on competition to make them efficient, or even possible. The ARD is available when:

  1. the restraint is ancillary to, or flows from, a broader or separate agreement that includes the same parties;
  2. the restraint is directly related to and reasonably necessary for achieving the objective of the broader or separate agreement referred to in (a) above; and
  3. the broader or separate agreement referred to in (a) above, when considered without the restraint, does not violate subsection 45(1.1).

To be eligible for the defence in subsection 45(4), the restraint in question must be ancillary to a broader or separate agreement that includes the same parties. As further described in the CCGs, the Bureau may examine the terms of the agreement, the form of the agreement, the functional relationship or lack thereof between the restraint and the principal agreement, and how the restraint makes the principal agreement more effective in accomplishing its purpose. In addition to the other considerations discussed in the CCGs, the Bureau will take the following into account:

  • whether the ancillary restraints provision is "directly related and reasonably necessary" to give effect to the objective of the broader agreement. The Bureau will not "second guess" the parties with reference to some other restraint that may have been less restrictive in some insignificant way. However, if the parties could have achieved an equivalent or comparable arrangement through practical, significantly less restrictive means that were reasonably available to the parties at the time when the agreement was entered into, then the Bureau will conclude that the restraint was not reasonably necessary;
  • the duration of the ancillary restraint, the subject matter of the restraint and its geographic scope (e.g., whether it applies to employees unrelated to the collaboration) to determine whether it is reasonably necessary to give effect to the objective of the broader agreement; and
  • whether, in the absence of the restraint, the agreement could only be implemented under considerably more uncertain conditions, at substantially higher cost or over a significantly longer period.

The Bureau will examine the circumstances leading to the adoption of the restraint, including the submissions of the parties to the Bureau, evidence created during the evaluation and negotiation of the agreement that demonstrates the objectives of the agreement, and any evidence of alternative options considered by the parties at the time the agreement was negotiated.

The Bureau recognizes the significance that non-solicitation clauses can play in many agreements to purchase a business. Consistent with the approach outlined in the CCGs, it 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. An exception would be where those clauses are clearly broader than necessary in terms of covered employees, territories or duration, or where the merger, joint venture or strategic alliance is a sham.

When the ARD applies, the Bureau may still examine the agreement under the reviewable matters provisions in Part VIII of the Act, including the civil agreements provision in section 90.1.

3.2 Other defences and exceptions

Employers should be aware that other legal defences or exceptions may apply, such as the regulated conduct defence or agreements reached between employers in the course of collective bargaining. Employers are encouraged to consult the CCGs as well as other applicable legislation and case law. Where the parties raise a defence, the Bureau will examine the validity of the defence before deciding whether to refer the matter to the DPP.

4. Penalties

If the Commissioner concludes that an offence under section 45 has been committed, the Bureau may refer the case to the DPP and recommend criminal charges. The DPP will then decide whether to prosecute based on the criteria in the Public Prosecution Service of Canada Deskbook.

The 2022 amendments to the Act updated the penalties for violating the conspiracy provisions. As of June 23, 2023, a person found guilty of an offence under subsections 45(1) or (1.1) may be imprisoned for up to 14 years or subjected to a fine at the discretion of the court, or both.

Further information respecting other penalties and remedies available to the Bureau and persons who have suffered loss or damage as a result of a violation is described in the CCGs.

5. Immunity and leniency

The Bureau’s Immunity and Leniency Programs are available for the offences described in subsection 45(1.1). To be eligible for these programs, applicants must provide sufficient information as it pertains to the applicable offence(s), including information relating to hiring practices and employee compensation.

Further information can be found in the Bureau’s Immunity and Leniency Programs. These programs currently are being updated to reflect the 2022 amendments to section 45.

Examples

Example 1: Wage-fixing agreements

Ms. X owns a private medical laboratory. During a lunch meeting with Mr. Y, who owns a chemical testing laboratory, the employers agreed to limit each employee’s annual bonus to 5% of their respective gross salary.

Analysis

This agreement would likely raise concerns under paragraph 45(1.1)(a). This provision says that it is illegal for two or more employers to agree to fix, maintain, decrease or control salaries, wages, or terms and conditions of employment. It doesn’t matter whether the employers are competitors in the supply of laboratory-related services. In this example, both employers have employees who earn a salary and who each ordinarily receive an annual year-end bonus based on their individual performance. Agreements to fix, maintain, decrease or control bonuses are prohibited under the provision.

Example 2: No-poaching agreements and employee secondments

Company A is a consulting company who embeds its employees in its clients’ businesses for a set period of time. As part of a consulting contract, Company B agrees to not hire Company A’s embedded employees for a period of one year following completion of the contract. Company A does not make the same agreement regarding Company B’s employees.

Analysis

The no-poaching agreement was entered into by two employers to prevent Company’s A employees from being hired away by Company B. Since the restraint contained in the agreement only applies to Company A’s employees, it is a “one-way” agreement that does not apply to “each other’s” employees, and, therefore, does not violate paragraph 45(1.1)(b).

Example 3: No-poaching agreements and recruitment agencies

Staffing Company X provides staffing and recruitment services. It has entered into a staffing agreement with Company Y to provide specialized labourers for a short period. As part of the contract, Companies X and Y agree not to hire each other’s employees while the contract is in effect.

Analysis

Companies X and Y are both employers and likely have entered into a no-poaching agreement in violation of paragraph 45(1.1)(b). In this scenario, the parties may be able to rely on the ARD in subsection 45(4) if they can demonstrate that (i) the no-poaching agreement flows from the broader staffing agreement and (ii) it is directly related to and reasonably necessary for achieving the objective of the broader staffing agreement. In this example, the no-poaching agreement is in effect only for the duration of the contract. While the ARD may apply under these circumstances, employers should be aware that duration or other terms attached to an ancillary restraint, such as geographic scope, will be examined to determine whether they are “reasonably necessary.”

Example 4: No-poaching and franchise agreements

Company A is in the business of franchising fast food restaurants across Canada. Company A and each franchisee spend a lot of money and time training new employees. To this end, the franchise agreements entered into by Company A and each franchisee include a no-poaching clause whereby the franchisor and franchisee each undertake to not hire persons who are currently employed by the franchisor or other franchisees. Each franchisee has an understanding that the hiring of its employees by another franchisee or Company A is prohibited.

Analysis

The no-poaching agreements would likely raise a concern under paragraph 45(1.1)(b). Ordinarily, franchisors and franchisees are not affiliated and employers in franchise relationships cannot rely on the affiliation exception in subsection 45(1.1). Further, the subsection says that it is illegal for two or more employers to agree to not solicit or hire each other’s employees. Since the franchisees and Company A are employers, paragraph 45(1.1)(b) applies. It doesn’t matter whether the franchisees compete with each other or with Company A in the supply of a product.

Two types of businesses relationships are identified in the scenario:

  • the agreements/understanding between franchisees; and
  • the agreements between the franchisor and each franchisee.

It seems less likely that the ARD in subsection 45(4) would apply to agreements between the franchisees since it could be an unnecessary restraint on their employees’ job opportunities. Whether it applies to the agreement between Company A and each franchisee will be case-specific and depend on whether the employers can prove the no-poaching clause is necessary and flows from the broader franchise agreement. When the elements of the ARD or any other defence are satisfied, the Bureau may review the agreement under Part VIII of the Act and apply to the Competition Tribunal for a remedy, if appropriate.