Are you ready? Deadline fast approaching for wage-fixing, no-poaching rules

While previously there were civil provisions around wage fixing and no-poach agreements, the government is now making it a criminal offence to engage in these activities.

With the amendments, employers cannot agree to: fix, maintain, decrease or control wages or other terms of employment or refrain from hiring or trying to hire one another’s employees.

And that big change takes effect June 23, 2023.

Since the law was first passed last summer, several questions arose as to how the new rules would apply. And on May 30, the Competition Bureau released Enforcement Guidelines with further clarifications.

But there’s no reason to panic, says Dasha Peregoudova, partner at Aird & Berlis in Toronto.

“As much as the Guidance seems quite technical and nuanced, and perhaps an area that most employers, particularly smaller employers, may not have great familiarity with, I'd say there's no major reason for panic because this is limited to those reciprocal agreements, so they are identifiable.”

Plus, employers are already familiar with various rules around restrictive covenants, such as non-compete clauses and non-solicitation clauses, she says.

“In that sense, it is good news, because this is an extension of those considerations that they have already had practices around.”

Which employers will be affected?

But it’s also important to note the changes apply to all employers, says Peregoudova.

“The Competition Act applies to any business or employer doing business in Canada, whether you're federally or provincially regulated.”

Another important consideration? The new criminal provisions can apply to employers that are not necessarily competitors — or “unaffiliated” employers.

“That in itself was a bit of a surprise, and an eye-opening component there. And I think that that's something that not every employer in Canada is going to appreciate,” says John Agioritis, a partner at MLT Aikins in Saskatoon.

While the new provisions can extend, theoretically, to capture parties to an agreement who are unaffiliated, and from different industries as well, says Peregoudova, “there would be no violation of the prohibition in the context of a restriction that applied to only one of the parties. So party A agrees not to solicit party B's employees — if it's not reciprocal, reciprocal being a very key term, then presumptively there is no violation.”

Do pre-existing agreements matter?

Another question on many people’s minds was whether the new wage fixing, no-poaching amendments would apply to pre-existing agreements. The Competition Bureau has explained that the rules concern agreements made between employers “on or after June 23, 2023.”

However, they also apply “to conduct that reaffirms or implements agreements that were made before that date.”

What does that mean? “The Bureau is unlikely to find a wage-fixing or no-poaching agreement problematic when the parties take no steps to reaffirm or implement the restraint on or after June 23, 2023.”

As a result, “employers may wish to update pre-existing company records and agreements, as they arise in the ordinary course, to ensure they accurately reflect its policies and intentions, and to avoid unnecessary confusion.”

Basically, if it's in your agreement but you take no steps to continue with the practice, it's unlikely that they're going to focus on that, says Agioritis.

“There needs to be potentially something further than that, in order to establish that there's been an agreement to continue with the practice after that date,” he says.

“So if it's there and it's in your contract and you don't take steps to actually proceed forward with that, you could be OK. However, I'm still uncomfortable with that because it exists and an HR professional who remains untrained and isn't aware that the changes have happened or is simply looking at an agreement that exists and indicates, ‘Well, I guess we can do it with this particular employer,’ they might not know.”

As a result, employers are well-advised to review their agreements and make sure that either they amend the provisions or determine that they're not going to actually engage in that conduct, or train their employees to ensure that that's not something they can do following the 23rd of June, says Agioritis.

No-poaching agreements clarified

The new law prohibits agreements between unaffiliated employers to not solicit or hire each other’s employees — or no-poaching agreements. But this provision applies only to agreements to not solicit or hire “each other’s” employees, say the Enforcement Guidelines.

“When a restraint contained in an agreement only applies to one employer, the Bureau will view it as ‘one-way’ and not applicable to ‘each other’s’ employees. However, when there are separate agreements between two or more employers that result in reciprocating promises to not poach each other’s employees, then the Bureau may take enforcement action.”

Several employers have asked, “Can we still ask our employees not to solicit once they leave?’” says Peregedouva.  “That is a one-way agreement — this has to be a two-way agreement that's reciprocal for it to be in violation… It does not apply to one-sided agreements.”

As part of that, the government also clarified that “employers” includes directors, officers, as well as agents or employees, “such as human resource professionals.”

But again, that shouldn’t be too concerning, she says.

“I understand why that may be a bit triggering... I think that's really just to imply that there are decision-makers behind this such that ‘employer’ is not only limited to the aggregate or the whole of a company,” she says.

“They know that human resources professionals may be the primary parties dealing with such things in terms of hiring for market considerations, in some instances — that’s why they have been identified as individuals who may perhaps be chiefly responsible for such elements. But that doesn't necessarily mean that they're under a particular microscope, it's just that I think they're more commonly associated with such decisions and practices.”

A 2021 survey found many hiring professionals felt poaching talent from other companies and competitors made sense – especially with the pandemic.

Wage fixing agreements

As for the issue of wage fixing, this requires two employers that are unaffiliated to basically conspire, agree or arrange to fix the wage and other terms of employment, says Agioritis.

“It’s that specific — it's not going to simply impact two employers who are engaged in the same activity or ... putting out into the market the exact same terms of employment — they have to come to an agreement or an arrangement,” he says.

“It doesn't target employers who independently offer the same wage, let's just put it that way. Something more is required.”

The Bureau also talks about “conscious parallelism,” which means, basically, “where a business acts independently with awareness of the likely response of its competitors,” says Agioritis. “So it's not an offence to engage in that type of conscious parallelism.”

If there's no agreement, arrangement or understanding that the two parties are actually going to do this — so one's simply following the lead of the other or observing the other — that might not constitute an offence, he says.

“You'd need something more, you’d need a facilitating practice, some form of communication that demonstrates that [the employer] has engaged in some form of agreement, or arrangement to fix wages.”

Notably, the government outlines that “terms and conditions” of employment include the responsibilities, benefits and policies associated with a job, such as job descriptions, allowances such as per diem and mileage reimbursements, non-monetary compensation, working hours, location and non-compete clauses, or other directives that may restrict an individual’s job opportunities.

Risks to information sharing

Another important consideration for HR in complying with the new rules concerns information sharing. While ordinarily this does not raise concerns under the Competition Act because parties usually want to maintain their commercial and competitive advantage, “in certain circumstances, information sharing may give rise to an inference that an agreement exists between the parties,” say the Enforcement Guidelines.

As a result, “employers should take care when sharing commercially sensitive information with each other in the course of collaborative activities, including the sharing of employment terms, to ensure that the conduct would not raise concerns.”

With this new rule, some employers have been asking, for example, whether this means surveys are not allowed or HR can’t ask an employee about salary expectations, says Peregoudova.

“Our general takeaway is that this is not meant to curb market practices or hiring practices or informed decision-making. That is not really what the issue here is; that is acceptable. Generally speaking, I just think there's always going to be a bit of caution provided to say, ‘Listen, if that starts to toe the line into practices that are effectively anti-competitive — that's really where the bureau starts to take issue.’”

“I think there's quite a bit of room there before you really step over the line.”

But there is a risk, says Agioritis.

“If you're on a trade association or if you're sharing information, you have to make sure that you're not engaged in actually talking about those kinds of conditions of employment with a view to ensuring that there's going to be any agreement between the two employers. I mean, that's the risk that's there — information sharing itself is going to be a problem,” he says.

“Not every HR professional will appreciate that they can't just simply have a discussion about the particular terms of employment that they might be engaging in with each of their employees without considering whether they might be engaging in conduct that that might fall offside. So there has to be a bit more care and attention as a result of that.”