No-poaching rules clarified by government

Back in 2016, the Department of Justice and the Federal Trade Commission in the U.S. issued a joint Antitrust Guidance for Human Resource Professionals to alert those involved in hiring and compensation decisions to potential violations of the antitrust laws.

“An agreement among competing employers to limit or fix the terms of employment for potential hires may violate the antitrust laws if the agreement constrains individual firm decision-making with regard to wages, salaries or benefits; terms of employment; or even job opportunities. HR professionals often are in the best position to ensure that their companies’ hiring practices comply with the antitrust laws. In particular, HR professionals can implement safeguards to prevent inappropriate discussions or agreements with other firms seeking to hire the same employees,” said the department.

More recently, the U.S. federal grand jury indicted a business owner in December for “participating in a conspiracy to fix prices” by lowering the wages paid to workers. And in January, the jury charged an employer with violating the Sherman Act for engaging “in a conspiracy to suppress competition between them for the services of senior-level employees by agreeing not to solicit each other's senior-level employees.”

These moves south of the border had many wondering if Canada would take a similar approach in pursuing criminal charges when it comes to wage-fixing and no-poach agreements. But recently, the government delivered a “welcome clarification” for employers in confirming the criminal angle would not apply, says Shuli Rodal, partner and chair of the competition and foreign investment group at Osler, Hoskin & Harcourt in Toronto.

“It provides some comfort to the Canadian business community about how the law will be enforced,” she says. “At the same time, it serves as a bit of a warning that this is not intended to be a signal that the Competition Bureau is not concerned about this — they are constrained by the law, not by the extent to which they regard the activity as concerning.”

2009 amendments change act

Before 2009, there was a single provision in Canada’s Competition Act that dealt with agreements among competitors, says Rodal. It basically said that any agreement among competitors could be subject to a criminal enforcement if it resulted in “undue lessening” of competition.

But that created a very high bar for the government to ever prosecute a price-fixing agreement, she says.

“It wasn't enough to just say two competitors or two people had agreed to fix prices amongst themselves ― you also had to show to a criminal standard of proof that the result would be an undue lessening of competition in the market.”

So, in 2009, Canada amended section 45 of the Competition Act and basically broke it into two separate provisions by taking a dual-track approach, says Rodal. One is a “per se” criminal offence, meaning agreements that have no redeeming features are subject to enforcement as a criminal matter, regardless of whether there’s any market impact.

“The agreement itself creates the offence,” she says.

The tradeoff was that the per se treatment would be limited to those agreements “that are really hardcore, price-fixing, market-allocation, customer-allocation-type agreements… because you no longer had to show any impact on competition,” says Anita Banicevic, a partner at Davies in Toronto.

The Competition Bureau was looking to apply criminal enforcement to the most egregious agreements or “hard-core cartels” with “naked restraints” on competition, says Erin Brown, an associate at Norton Rose Fulbright in Ottawa.

“There's nothing legitimate about them ― they're not in furtherance of a legitimate collaboration, a strategic alliance or joint venture and the Competition Bureau doesn't need to look into whether they substantially lessen or prevent competition because they de facto do,” she says.

The other provision introduced in 2009, section 90.1, says all agreements between competitors can be reviewed to see whether they substantially prevent or lessen competition, says Rodal.

“Basically, you had the very narrow set of agreements, which are subject to only proof that there was an agreement; and then you have everything else, which was subject to an assessment based on the impact it had on the market, commercial justification, etc.”

Competition Bureau weighs in

Despite the changes, there was some discussion over the years because the criminal provision didn’t specifically address employment and wage-fixing agreements, says Rodal. For example, could employment be considered an offer of a product or service?

With the 2009 amendments, there were changes to the actual language and scope of what is caught in the criminal sphere rather than in the civil sphere, says Banicevic.

“That’s where some of the questions have arisen in terms of ‘What is caught under criminal? And how do you look at those types of agreements relating to poaching, non-poaching agreements and wage fixing?’”

As a result, on Nov. 27, 2020, the Competition Bureau put out a statement saying that it would not assess agreements for the purchase of products and services — including employee no-poaching and wage-fixing agreements — under section 45: “While the Competition Bureau views such buy-side agreements between competitors as raising serious competition issues, the 2009 amendments to the Competition Act included the removal of the word ‘purchase’ from section 45, limiting its scope to supply-side agreements.”

So, to the extent that the bureau wishes to take on no-poach or wage-fixing agreements, it would have to do so under the civil competitor collaboration provision, 90.1, says Rodal.

“It also sends a signal that the Competition Bureau feels strongly that these types of agreements are anti-competitive, and that just because they're not necessarily to be pursued criminally, it doesn't mean everybody should not worry at all.”

Takeaways for HR, employers

While the government can’t impose any fines or financial penalties for these types of agreements, an investigation could damage a company's reputation and be extremely expensive and disruptive, says Rodal.

“Unlike in the U.S., it won't be pursued criminally here, but you’ve still got to watch what you're doing and have an acceptable business justification for the actions that you're taking.”

But any companies that are operating on both sides of the border need to be careful about the “vastly different” regime in the U.S. with respect to criminal law enforcement, says Brown.

And while section 90.1 doesn’t have as much teeth as section 45, employers still don't want to be wrapped up in this, she says.

“It’s potential reputational damages, it's getting wrapped up in in cumbersome proceedings,” says Brown. “The Competition Tribunal, if they find that there's a problem, they can make orders, including prohibiting basically anyone from doing anything under that agreement or arrangement that's been made.”

Plus, employers are often held to task by unions — probably more so than in the United States — says Paul Macchione, senior associate at Norton Rose Fulbright in Toronto.

“Just because something is not held to be criminal doesn't mean there aren't repercussions if you're not treating your workforce appropriately.”

And instead of no-poaching agreements, most companies can use non-compete agreements with employees, he says, although these face a very high standard.

“They're actually found prima facie unenforceable unless they're no more restrictive than necessary by our courts,” says Macchione.

Overall, it’s best practice to make sure there are legitimate opportunities for collaboration within a market, such as industry associations or trade groups, says Brown.

“[Make sure] that you're not sharing competitively sensitive information with a competitor, and if there is a desire to share information, it should be collected by a third party and then disseminated in aggregated form so that it can't be attributed to any competitor. And it's always safer to share, for example, historical information rather than forward-looking or current information.”