On June 23, 2022, changes to the Competition Act were passed into law which criminalized wage-fixing and no-poach agreements between unaffiliated employers in Canada.

These changes will come into force on June 23, 2023. It is important for both employers and employees to understand how these provisions operate before that date, as these changes open employers found in breach to significant legal exposure.  

The most important changes from an employment perspective are the creation of two offenses which are new to Canadian law:

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1. It is an offense for unaffiliated employers to conspire, agree or arrange to fix, maintain, decrease or control salaries, wages or terms and conditions of employment; and
2. It is an offense for unaffiliated employers to conspire, agree or arrange to not solicit or hire each other’s employees.

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Penalties under Competition Act

The changes to the Competition Act also include significant penalties for wage-fixing and no-poach agreements, including imprisonment for up to 14 years and/or a fine in the discretion of the court.  Notably, the amendments to the Competition Act removed the previous ceiling on fines of $25 million, so the size of the financial penalty that an employer can face is now theoretically uncapped.

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Why?

The motivation behind the changes to the Competition Act was to address a gap in the law in Canada which was driven into sharp relief during the Covid-2019 pandemic.  In March 2020, various food retailers in Canada introduced a wage premium to, among other reasons, reward employees who continued to provide essential services during the early lockdowns.  Three food retailers subsequently simultaneously terminated this wage premium in June 2020.

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The House of Commons Standing Committee on Industry, Science and Technology conducted hearings to look into the matter in July 2020.  The testimony of the representatives of the food retailers before the Committee confirmed that communication had taken place at the executive level regarding the termination of the wage premiums, but all of the representatives denied any coordination, and maintained that their decisions had been made separately.  Notably, under the Competition Act at the time this communication occurred, coordination for the purposes of suppressing wages (had it in fact occurred) was entirely legal.

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Proving wage-fixing and no-poach agreements

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Notably, the Competition Act allows a conspiracy, agreement or arrangement to be proven through circumstantial evidence.  Accordingly, while the existence of the conspiracy, agreement or arrangement must be established beyond a reasonable doubt to make out the offense, it is impossible to infer the existence of such a conspiracy without direct evidence.  

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There is an interesting exception to the wage-fixing and no-poach agreements, in that if it can be shown that the wage-fixing or no-poach agreement is ancillary to a broader or separate agreement or arrangement involving the same parties, and if it can be shown it is directly related to and reasonably necessary to give effect to the objective of the broader agreement, there can be no conviction under the Competition Act.  What this means, in effect, is that employers who enter into a no-poach agreement in certain contexts, such as the purchase and sale of a business or a joint venture, which may reasonably require such a clause in certain circumstances, are likely not in breach of the new provisions to the Competition Act.  Any employer contemplating such an agreement should approach it with extreme caution, and seek legal advice before doing so.

TAKEAWAYS

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Employers should consult with legal counsel to review any agreements they have entered into with other unaffiliated employers to ensure that they are in compliance with the new provisions of the Competition Act well in advance of the amendments coming into force in June 2023.  

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From the employee perspective, employees who believe that they have been subject to a wage-fixing or no-poach scheme should seek legal advice, as it is possible to ground private civil actions on violations of certain sections of the Competition Act.

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Note to Readers: This is not legal advice. If you are looking for legal advice in relation to a particular matter please contact one of our group members. We communicate all these updates to our clients and readers on our Employer Resources Portal and through monthly Newsletters.