Enforcement Guidelines on wage-fixing and no poaching agreements

May 30, 2023

On this page:

• Preface

1. What is prohibited
   • 1.1 Overview
   • 1.2 General principles
     • 1.2.1 Applicability
     • 1.2.2 Affiliation
     • 1.2.3 Employers
     • 1.2.4 Employment relationship
     • 1.2.5 Information sharing
2. Types of prohibited agreements
   • 2.1 Wage-fixing agreements
   • 2.2 No-poaching agreements
3. Defences
   • 3.1 Ancillary restraints defence
   • 3.2 Other exemptions, exceptions and legal defences
4. Immunity and leniency
5. Examples
   • Example 1: Wage-fixing agreements
   • Example 2: Reciprocity and no-poaching agreements
   • Example 3: Employer-employee relationship and scope of restraints
   • Example 4: No-poaching and franchise agreements
6. Footnotes

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. One of these changes added subsection 45(1.1)^{Footnote 1} to the existing criminal conspiracy provisions. This new subsection protects competition in labour markets, as it prohibits agreements between employers to fix wages and restrict job mobility.

Like agreements between competitors related to price-fixing, market allocation and output restrictions under subsection 45(1), wage-fixing and no-poaching agreements undermine competition and 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.

The Bureau is providing these Guidelines as part of its commitment to transparency and predictability. The Guidelines describe the Bureau’s approach to enforcing subsection 45(1.1) and should be read together with the Competitor Collaboration Guidelines (the CCGs).^{Footnote 2}

These Guidelines do not restate the law. They are not a binding statement of how the Commissioner of Competition or the Director of Public Prosecutions (the DPP) would exercise their discretion in a particular situation. The decisions of the Commissioner and the DPP, and the final resolution of issues, depend on the specific matter in question.^{Footnote 3} The courts are responsible for the final interpretation of the law.

The Bureau may revisit these Guidelines in the future in light of experience, changing circumstances and legal developments.

1. What is prohibited

1.1 Overview

Subsection 45(1.1) makes wage-fixing as well as non-solicit and no-hire agreements^{Footnote 4} (“no-poaching agreements”) per se^{Footnote 5} illegal. The new provisions require proof beyond a reasonable doubt and are subject to serious criminal penalties. A person found guilty of an offence under subsection 45(1.1) may be imprisoned for up to 14 years or subjected to a fine at the discretion of the court, or both.^{Footnote 6}

Subsection 45(1.1) is directed at “naked restraints” on competition. These include restraints on wages or job mobility that are not implemented to further a legitimate collaboration, strategic alliance or joint venture.^{Footnote 7}

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 describes its approach to enforcing the new provisions below.

1.2 General principles

1.2.1 Applicability

Subsection 45(1.1) applies to agreements made between employers on or after June 23, 2023. It also applies to conduct that reaffirms or implements agreements that were made before that date.^{Footnote 8}

With respect to pre-existing agreements, the Bureau is unlikely to find a wage-fixing or no-poaching agreement problematic when the parties take no steps to reaffirm or implement the restraint on or after June 23, 2023. Further, at least two parties must reaffirm or implement the restraint for the Bureau to establish the requisite consensus or “meeting of the minds”.^{Footnote 9} Since the Bureau’s focus is on the intent of the parties on or after June 23, 2023, employers may wish to update pre-existing company records and agreements, as they arise in the ordinary course, to ensure they accurately reflect its policies and intentions, and to avoid unnecessary confusion.

1.2.2 Affiliation

Subsection 45(1.1) applies to agreements between unaffiliated employers.^{Footnote 10} It does not apply to agreements entered into only by affiliated employers. 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 provisions.

1.2.3 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 product.^{Footnote 11}

“Employers” includes directors, officers, as well as agents or employees, such as human resource professionals. 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 prosecution.^{Footnote 12} Further, corporations may be subject to prosecution as a result of an agreement between their respective employees if those employees are acting as senior officers.^{Footnote 13}

1.2.4 Employment relationship

Subsection 45(1.1) applies to certain agreements between unaffiliated employers regarding their employees. Whether an employer-employee relationship exists between parties will depend on the nature of their interactions and applicable provincial and federal laws. Employers should note that their contractual relationship with the people they hire could evolve into an employer-employee relationship over time.

1.2.5 Information sharing

Information sharing does not ordinarily raise concerns under the Act because parties usually want to maintain their commercial and competitive advantage. However, in certain circumstances, information sharing may give rise to an inference that an agreement exists between the parties under subsection 45(1.1) or be reviewable under Part VIII of the Act.^{Footnote 14}

Employers should take care when sharing commercially sensitive information with each other in the course of collaborative activities, including the sharing of employment terms, to ensure that the conduct would not raise concerns.^{Footnote 15}

2. Types of prohibited agreements

2.1 Wage-fixing agreements

Paragraph 45(1.1)(a) prohibits agreements between unaffiliated employers:

• to fix, maintain, decrease or control^{Footnote 16} salaries;
• to fix, maintain, decrease or control wages; and
• to fix, maintain, decrease^{Footnote 17} 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) prohibits agreements between unaffiliated employers to not solicit or hire each other’s employees. When an agreement limits an employee’s job opportunities, the Bureau may examine whether the limitation is in furtherance of a no-poaching agreement. Limitations designed to prevent employees from being solicited or hired by another party to the agreement could include, for example, restrictions on the communication of information related to job openings and the adoption of biased hiring mechanisms.^{Footnote 18}

As mentioned, the paragraph applies only to agreements to not solicit or hire “each other’s” employees. When a restraint contained in an agreement only applies to one employer, the Bureau will view it as “one-way” and not applicable to “each other’s” employees. However, when there are separate agreements between two or more employers that result in reciprocating promises to not poach each other’s employees, then the Bureau may take enforcement action.^{Footnote 19}

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.^{Footnote 20} 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 it is likely that:

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 ARD, 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, the Bureau will take the following into account:

• whether the restraint 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 also examine what led to the adoption of the restraint. This includes evidence created during the evaluation and negotiation of the agreement that demonstrates the objectives of the agreement, evidence of alternative options considered by the parties at the time the agreement was negotiated, and any submissions made by the parties to the Bureau.

The Bureau recognizes the significance that labour-related restraints can play in many business agreements. Reasonably necessary restraints can play an important role in stabilizing and protecting parties’ business interests in the course of advancing legitimate pro-competitive objectives. Consistent with the CCGs, the Bureau will generally not assess wage-fixing or no-poaching clauses that are ancillary to merger transactions, joint ventures or strategic alliances^{Footnote 21} under the criminal provisions. Similarly, it recognizes the role these types of restraints can play in certain business arrangements, for example in franchise agreements and certain service provider-client relationships, such as staffing or IT service contracts. However, the Bureau may start an investigation under subsection 45(1.1), where those clauses are clearly broader than necessary in terms of duration or affected employees, or where the business agreement or arrangement is a sham.^{Footnote 22}

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 exemptions, exceptions and legal defences

Employers should be aware that other exemptions, exceptions or defences under the Act may apply to conduct described in subsection 45(1.1). For example:

• section 4 provides an exemption for agreements between employers with respect to collective bargaining with their employees over salaries or wages and terms or conditions of employment; and
• subsection 45(7) provides a defence for conduct required or authorized by or under another Act of Parliament or the legislature of a province.^{Footnote 23}

Where parties raise an exemption, exception or defence, the Bureau will examine its validity before deciding whether to refer the matter to the DPP.

4. 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 about the offence(s). This includes information relating to hiring practices and employee compensation.

Further information can be found in the Bureau’s Immunity and Leniency Programs.

Examples

Example 1: Wage-fixing agreements

Lucy owns a private medical laboratory. Jerry owns a chemical testing laboratory. During a lunch meeting, Lucy and Jerry agreed to limit each of their employees’ annual bonus to 5%.

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 does not 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 bonus. Agreements to fix, maintain, decrease or control bonuses are prohibited under the provision.

Example 2: Reciprocity and no-poaching agreements

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. 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 A’s employees from being hired away by Company B. Since the restraint contained in the agreement only applies to Company A’s employees, it is “one-way” and lacks a reciprocating promise from Company B. The restraint therefore does not apply to “each other’s” employees. As a result, it does not violate paragraph 45(1.1)(b).

Example 3: Employer-employee relationship and scope of restraints

Company X provides staffing and recruitment services. It has entered into a staffing agreement with Company Y to provide specialized workers 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

(a) Employer-employee relationship

In this scenario, the Bureau would examine the relationship between the workers and employers to determine whether an employer-employee relationship exists.

To this end, the Bureau will consider applicable provincial and federal legislation as well as the parties’ agreements and conduct. Employers are reminded that, depending on applicable legislation, their relationship with independent contractors could evolve over time. For example, if an employer treats an independent contractor as an employee, the business contract between them could transform into an employment relationship.

(b) Scope of restraints

The no-poaching agreement between Companies X and Y is only in effect for the duration of the contract. However, the Bureau may require more information to determine if the restraint is reasonable. Regardless of the duration of the restraint, and whether it terminates when the staffing agreement ends, the ancillary restraints and its terms must be reasonably necessary. While the Bureau may take comfort that the no-poaching clause terminates upon the completion of services, it could take enforcement action when a restraint is clearly broader than necessary.

When the ARD applies, the Bureau may still examine the agreement under the reviewable matters provisions in Part VIII of the Act.

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 lower their training costs, Company A and each franchisee separately agree not to poach each other’s employees, as well as those of other franchisees. The franchisees have no agreements directly between them. However, each franchisee has an understanding that the franchisor will enter into a no-poaching agreement with every franchisee within the franchise system.

Also, the franchisees want to establish a system among themselves to recoup training costs from a “poaching” employer, instead of relying on the franchisor’s enforcement of the no-poaching restraint.

Analysis

The no-poaching agreements likely would 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 Act’s affiliation definition. Further, the paragraph 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 does not matter whether the franchisees compete with each other or with Company A in the supply of a product.

(a) Agreements between parties

The scenario identifies two types of business relationships:

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

Since the focus of subsection 45(1.1) is agreements between employers, the provision could apply to either business relationship.

As described in section 3.1 above, the Bureau recognizes that certain restraints can play an important role in the franchise model and agreements between franchisors and each franchisee. However, the Bureau may initiate an investigation under subsection 45(1.1) if those restraints are clearly broader than necessary.

With respect to the understanding between franchisees, a franchisee’s mere awareness of parallel standard franchise agreements, which include no-poaching restraints, ordinarily will not raise concerns under subsection 45(1.1), unless there is evidence of an intention between franchisees to enter into a no-poaching agreement with each other. Franchisees should recall that the ancillary restraints defence will only apply when they are parties to a broader agreement. For example, steps taken by two or more franchisees to enforce a franchise agreement’s no-poaching restraints could provide evidence of a no-poaching agreement among them and give rise to an offence under paragraph 45(1.1)(b). In determining whether an agreement exists between franchisees, the Bureau will consider whether the parties reached a consensus, either explicitly or tacitly.

(b) Recoupment of training costs

With respect to a franchisee’s ability to recoup training costs related to a “poached” employee, the Bureau generally would not consider these arrangements problematic under subsection 45(1.1) where the compensation is reasonably related to the costs incurred for training and does not disadvantage employees’ opportunities relative to external candidates.