Five things you need to know about Canada’s new wage-setting bans and poaching ban

TORONTO — New rules banning wage and poaching agreements go into effect Friday in a bid to crack down on companies that undermine competition at the expense of workers.

Here’s what employers and employees need to know about the new rules:

What is the new law?

From June 23, it will be a criminal offense if two or more employers make deals that fix, keep, reduce or control wages. The same goes for agreements that prevent companies from hiring or recruiting each other’s employees.

It comes after the federal government made amendments to the Conspiracy Provision of the Competition Act in June 2022 as part of the Budget Implementation Act.

“Just like price fixing between competitors, wage agreements and non-poaching agreements undermine competition,” said the Competition Bureau, which is responsible for administering and enforcing the Competition Act.

“Maintaining and encouraging competition between employers results in higher wages and salaries, as well as better benefits and employment opportunities for employees.”

The penalty for violating the wage settlement and non-poaching provisions includes imprisonment for up to 14 years and/or a fine at the discretion of the court.

What’s different from before?

Article 45 of the Competition Act so far prohibits agreements between competitors to fix prices, allocate markets or limit production.

But that was not true of companies’ practices in compensating labor. Instead, agreements between competing buyers were considered civil law provisions in Section 90 of the Act, which prohibits deals that could significantly prevent or reduce competition.

“So if an agreement between competing buyers results in anti-competitive effects, such as higher prices, then that agreement can be challenged and banned under the civil provisions,” said Adam Goodman, a partner in Dentons’ competition and foreign investment assessment group. .

“What the new law does is make it a criminal offense for a subset of buyer-side behavioral segments.”

Fines were capped at $25 million under the previous provision.

“The changes to wages and the ban on poaching that are coming into effect are an important step in the ongoing modernization of Canada’s competition law,” Competition Commissioner Matthew Boswell said in a press release.

Who do the new rules apply to?

The change only applies to agreements between non-affiliated employers. That means that wage or poaching agreements between two or more business entities controlled by the same parent company do not violate the provisions.

While the rules cover wage and poaching agreements between employers, regardless of whether they compete in the supply of a product, the Competition Bureau said it expects to prioritize enforcement of agreements between companies competing for labor.

The new law also only focuses on anti-poaching provisions that are mutual in nature. According to the Competition Bureau, if only one company agrees not to hire employees from another, it is not covered by the legislation.

Are there other notable exceptions?

The Competition Bureau says the law targets “naked restrictions” on competition, including restrictions on wages or labor mobility that are not applied to promote a legitimate partnership, strategic alliance or joint venture.

It said it plans to target restrictions that are “clearly broader than necessary in terms of duration or employees affected, or where the business agreement or arrangement is a sham.”

The rules do not cover “supportive restrictions” on competition designed to add efficiencies to “certain desirable business transactions or collaborations”. The Supplemental Restraint Defense is available to employers when the restriction is likely to arise from a broader or separate agreement involving the same parties and the arrangement is reasonably necessary to achieve an overarching purpose.

Had the parties been able to reach an equivalent or similar settlement with “significantly less restrictive means reasonably available,” the agency said it would conclude the restraint was unnecessary.

The agency said it also generally won’t review wage-fixing or non-poaching clauses associated with merger transactions under the new criminal law provisions.

“This is really reserved for naked restraints, where the parties are essentially trying to game or cheat the system in terms of non-poaching, pay-fixing, to the detriment of workers,” Goodman said.

What was the reason for this change?

Goodman said that over the past decade there has been increased attention to the issues of price-fixing and non-poaching deals, both in Canada and internationally.

In the US, he said, the momentum started in 2010 when the Justice Department challenged a non-poaching agreement between major tech companies on a civil basis. Then, in 2016, the department, along with the Federal Trade Commission, released guidance stating they would challenge such agreements on a criminal basis, which Goodman noted had “limited success”.

The problem intensified in Canada during the pandemic when supermarket giants Loblaws, Sobeys and Metro ended a bonus program for hourly wage earners known as “hero pay” on the same day in June 2020, raising questions about possible coordination.

While the companies told a House of Commons committee later that year that they had acted independently, Loblaw’s then-President Sarah Davis acknowledged sending an “email of thanks” about the move to competitors in advance.

In late 2020, Canada’s Competition Bureau issued guidance clarifying that due to the wording of existing law, it could not challenge wage settlements and no-poach agreements on a criminal basis.

“The competition agency always had the option not to challenge poaching or wage-fixing if they believed it led to anti-competitive effects and they never filed a case,” said Goodman.

“It’s not that there was a problem with the tool that was proven to be unsuitable for the job. The tools have never been used.”

This report from The Canadian Press was first published on June 23, 2023.

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