New regulations that aim to prevent wage-fixing and no-poaching agreements will come into effect on Friday. The objective is to combat unfair competition practices that harm employees. Under the new rules, it is now a criminal offense for two or more employers to collude in fixing, reducing, or controlling wages. Additionally, agreements that prevent companies from hiring or soliciting each other’s employees are also prohibited. These changes were implemented after amendments were made to the Competition Act’s conspiracy provision in June 2022. The Competition Bureau, responsible for enforcing the act, states that these agreements undermine fair competition and that promoting competition among employers leads to better wages, benefits, and job opportunities for employees. The penalties for violation of these provisions can include imprisonment for up to 14 years and fines at the discretion of the court.
Previously, Section 45 of the Competition Act prohibited agreements between competitors to fix prices, allocate markets, or restrict output. However, this did not extend to labor compensation practices. Such agreements between competing purchasers were governed by civil provisions under Section 90 of the act. These civil provisions prohibited agreements that substantially prevented or lessened competition. The new law now criminalizes certain buyer-side conduct segments, setting the stage for a change in the enforcement of competition law. The new amendments are considered a crucial step in the ongoing modernization of Canada’s competition law.
The new rules apply solely to agreements between unrelated employers. Agreements between two or more companies controlled by the same parent company do not fall under the provisions. Although the rules cover wage-fixing and no-poaching agreements, regardless of whether the companies compete in product supply, the Competition Bureau intends to prioritize enforcement on agreements relating to the competition for labor. The legislation focuses on mutual no-poaching provisions, meaning that if only one company agrees not to hire employees from another, it would not violate the law.
The Competition Bureau has clarified that the law specifically targets competition-restricting agreements that are not implemented to further legitimate collaborations, strategic alliances, or joint ventures. It intends to go after agreements that are broader than necessary, have excessive durations, or affect too many employees. The rules do not cover ancillary restraints on competition that contribute to efficiency in specific business transactions or collaborations. The bureau will assess whether such restraints are reasonably necessary to achieve an overarching objective. If there are less restrictive means available to achieve the same objectives, then the restraint will be considered unnecessary.
The change in these regulations is a response to increased attention on price-fixing and no-poaching agreements both in Canada and globally. Momentum began in the United States in 2010 when the Department of Justice challenged a no-poaching agreement between major tech companies. In 2016, both the Department of Justice and the Federal Trade Commission released guidance indicating their intention to challenge such agreements as criminal offenses. However, these efforts have had limited success. The issue gained further prominence in Canada during the COVID-19 pandemic when leading grocery companies simultaneously ended a bonus program for hourly workers. This raised suspicions of coordination among these companies. The Competition Bureau’s release of a guidance in late 2020 clarified the limitations of existing legislation in challenging wage-fixing and no-poaching agreements on a criminal basis. This change signals a shift in the enforcement approach and demonstrates a commitment to addressing unfair practices that harm employees.
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