Competition law is not always directly associated with the legal obligations that apply to employers. Often, when thinking about the requirements that employers need to satisfy with respect to their employees, issues are thought of in terms of specific legislation, the common law and human rights legislation. However, the laws governing market operation and anti-competitive conduct are also relevant.
Recently, the Canadian Parliament amended the country’s Competition Act by introducing a prohibition on wage-fixing and no-poaching agreements between employers. This article discusses the new prohibition and new draft guidelines issued by the Competition Bureau.
Introduction of the prohibition by the Canadian Parliament
Agreements between employers to fix wages (for example, to set salaries or limit wage increases) or restrict the ability of employees to change jobs inhibit competition in labour markets. Open competition among employers is more likely to result in employment opportunities with better wages and conditions for employees under their employment agreements.
As a result, the Canadian Parliament included this issue in its Budget Implementation Act 2022 No. 1, which received royal assent on June 23, 2022.
The prohibition on wage-fixing and no-poaching agreements
This piece of legislation introduced new subsection 45(1.1) into the Competition Act which provides that:
“Every person who is an employer commits an offence who, with another employer who is not affiliated with that person, conspires, agrees or arranges
(a) to fix, maintain, decrease or control salaries, wages or terms and conditions of employment; or
(b) to not solicit or hire each other’s employees.”
The new offence applies when unaffiliated employers, which is defined to include directors and officers, such as human resources employees, enter into certain types of conspiracies, agreements or arrangements.
Employers cannot agree with another employer to fix the amount of wages or salaries or terms and conditions of employment more broadly (a wage-fixing agreement), or to limit opportunities for their employees to be hired by each other (a no-poaching agreement).
Subsection comes into force on June 23, 2023
New subsection 45(1.1) comes into force on June 23, 2023, one year after the Budget Implementation Act.
The Competition Bureau guidelines, which are in draft form pending public consultation which closes on March 17, 2023, state that it is an offence for unaffiliated employers to engage in such conspiracies, agreements or arrangements as of that date. The guidelines state that:
“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 may be riskier for employers to engage in salary benchmarking activities
The Competition Act states that the courts can infer the existence of a conspiracy, agreement or arrangement from circumstantial evidence. This raises the question of whether the sharing of information between employers, for purposes such as determining the sorts of salaries that are being provided to particular types of employees by the market (often termed salary benchmarking), may fall foul of the new prohibition.
The draft Competition Bureau guidelines state that simply acting independently with awareness that competitors may respond or in response to the conduct of competitors, does not violate subsection 45(1.1) in its view. However, it goes on to say:
“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.”
As a result, employers need to take greater care that information-sharing activities do not fall foul of the prohibition.
The ancillary restraints defence may help employers in the context of certain business transactions
Section 45(4) of the Competition Act, the so-called ancillary restraints defence, applies to the new offence. If employers can establish its requirements, then they will avoid liability. The defence is designed to facilitate broader transactions, such as joint ventures or mergers, that require restraints on competition in order to achieve the transaction’s objective.
In order to rely on this defence, the employer needs to prove that:
- the conspiracy, agreement or arrangement to fix wages or not hire employees (that is, the restraint) is ancillary to a broader or separate agreement or arrangement that includes the same parties;
- the restraint is directly related to, and reasonably necessary for giving effect to, the objective of the broader or separate agreement or arrangement; and
- the broader or separate agreement or arrangement, considered without the restraint, does not contravene subsection 45(1.1).
Notably, the restraint is not reasonably necessary if there was a significantly less restrictive means that was reasonably available to the parties to give effect to the objective of the transaction.
Penalties include imprisonment and/or fines, plus the possibility of civil claims
The Competition Bureau conducts investigations to determine whether there may be evidence of an offence under the Competition Act. If there is evidence, it can refer the matter to the prosecution service and recommend criminal charges. The penalty for an offence under subsection 45(1.1) is specified to include imprisonment for up to fourteen years or a fine determined at the court’s discretion, or both.
Additionally, a person that has suffered loss or damage due to the commission of an offence under subsection 45(1.1) is entitled to sue to recover damages.
Contact Grosman Gale Fletcher Hopkins LLP in Toronto for Advice on Legislation Impacting the Employment Relationship
Federal and provincial legislation affecting employment issues is always evolving. The experienced employment lawyers at Grosman Gale Fletcher Hopkins LLP stay on top of these developments so you do not need to.
We advise employers on their employment contracts and policies, helping them comply with their legal obligations to mitigate the risk of successful claims. The firm also helps ensure that every employee understands their rights in the workplace. Contact us online or at 416.364.9599 to schedule a confidential consultation with a member of our employment law team.
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