Anti-competitive practices can harm employees. For example, agreements between employers to set wages or not solicit each other’s employees can result in lower pay and benefits than would otherwise be the case.

This article looks at recent amendments to Canada’s Competition Act prohibiting wage-fixing and no-poaching agreements between employers. 

Where did these concerns come from?

There have been concerns about anti-competitive employment practices for some time. These concerns arose following the decision by multiple grocery store chains to end the two-dollar-per-hour uplift in frontline worker pay, all at the same time in June 2020.

What does the new legislation do?

The Canadian Parliament passed Bill C-19, and it received royal assent as the Budget Implementation Act 2022 No. 1 (Budget Act) on June 23, 2022. 

This piece of legislation implements various provisions of the budget that was tabled in April 2022, as well as other measures. As such, it does things including amending taxation statutes and implementing other budget promises, for example, the two-year ban on the purchase of residential property by some categories of non-Canadians. 

Of relevance to employment law, the Budget Act also amends the Competition Act to prohibit employers from wage-fixing and entering no-poaching agreements.

What are the provisions on wage-fixing and poaching agreements?

The Budget Act introduces a new sub-section into section 45 of the Competition Act, which governs offences in relation to the competition. It comes into force on the first anniversary of the Budget Act receiving royal assent, so June 23, 2023.

New section 45(1.1) states:

“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 first limb of the offence refers to wage-fixing agreements but is broader than simply remuneration as it includes “terms and conditions of employment,” while the second is sometimes known as no-poach agreements.

The Budget Act also changes the Competition Act to specify that the court is able to infer the existence of a conspiracy, agreement or arrangement from circumstantial evidence. This means there does not need to be direct evidence of communication between the two unaffiliated employers.

What are the exceptions?

Section 45(4) of the Competition Act contains the so-called ancillary restraints defence, which will apply to the new offence. In order to take advantage of it, the employer needs to establish that the agreement is ancillary to a broader or separate and lawful agreement involving the same parties and is directly related to, and reasonably necessary for, giving effect to, the broader or separate agreement.

This may catch transactions, such as joint ventures, that need restraints on competition to facilitate the agreement. However, the wage-fixing or non-poaching clause needs to be directly related to and reasonably necessary for giving effect to the agreement. If it was possible to implement the transaction with an available, less restrictive measure, it might not be possible to rely on the exception.

What will be the effect of the legislation?

The provisions are drafted broadly; for example, there does not need to be a written agreement between employers to limit wages or not hire each other’s employees; any conspiracy, agreement or arrangement is sufficient. 

To what extent does the new offence prohibit benchmarking? Some employers share information about the wages they pay and check what competitors pay in order to remain competitive in the market for employees. These sorts of conversations may be riskier going forward.

To explain wage-fixing, a Competition Bureau tweet uses the example of a person that receives multiple cashier job offers, each with the same wage:

“It turns out that those competing stores made an agreement to offer the same hourly pay to limit competition on wages.”

A key question is how the Competition Bureau and courts will go about assessing whether an exchange of information between employers constitutes a conspiracy, agreement or arrangement.

What has the government said?

Very little. However, the guide to the amendments says that the new offence is designed to “protect workers from agreements between employers that fix wages and restrict job mobility.” This is consistent with a report on the budget, which describes the amendments to the Competition Act as a preliminary phase in modernizing Canada’s competition regime, including “fixing loopholes; tackling practices harmful to workers and consumers.”

What are the possible penalties for employers that fail to comply?

Employers that do not comply with the provision could be found guilty of an indictable offence. The penalty is specified to include imprisonment for up to fourteen years, a fine determined at the court’s discretion, or both. In addition, anyone that has suffered loss or damage as a result of an offence can sue to recover damages. 

What can employers do to prepare for the change?

Businesses with agreements, for example, in the context of broader transactions that relate to employees may need to consider whether these are prohibited by the new offence and potentially saved by the ancillary restraints defence.

When it comes to practices like salary benchmarking, it will be important for employers to carefully reflect on the processes they use for divulging and acquiring information, including remuneration. Having a properly considered and drafted policy is one way to minimize the risk of failing to comply with the new prohibition.

Contact Haynes Law Firm in Toronto for Guidance on Employment Legislation

The Haynes Law Firm advises both employers and employees on their rights and obligations under employment legislation. Federal and provincial legislation relating to employment is constantly changing and evolving. Paulette Haynes is across all the recent statutory developments, so it is well-placed to assist your organization in complying with all of its obligations or help you to enforce your legal entitlements. Please contact the Haynes Law Firm online or call us at 416.593.2731.