'Those kinds of discussions, as of June 2023, really could become quite risky'
“Let’s say you applied to multiple cashier jobs and you have received offers from competing stores… You notice that all the stores are offering the same wage.
“It turns out that those competing stores made an agreement to offer the same hourly pay to limit competition on wages.”
This is an example of wage fixing, according to a video tweet from the Competition Bureau.
But it’s also concerning to Anita Banicevic, partner at Davies in Toronto.
“In a competitive market, you would be benchmarking against your competitors and make sure that you have a competitive wage. So that's the challenge is that you look at that example and it is troubling because if that's what you need to have a criminal investigation, there's got to be something more than that, I would think and I would hope… it's not helpful to have those types of examples provided by the Bureau.”
The focus on wage fixing is part of major changes to Canada’s Competition Act that became law on June 23, 2022, “strengthening the Competition Bureau’s ability to protect Canadian consumers, businesses and workers from anti-competitive conduct.”
They come about partly because of similar enforcement in Europe and the U.S. — after the highly competitive tech industry of Silicon Valley was accused of anti-trust practices — but also because of issues around “pandemic pay” or “hero pay” when grocery store chains in Canada offered special wages.
Notably for employers and HR, these amendments in Canada will increase maximum fines and penalties for those who break the law, and make it an offence for employers to agree to fix, maintain, decrease or control wages or other terms of employment and to refrain from hiring or trying to hire one another’s employees (“no-poach agreements”). The penalty for violating this provision includes imprisonment for up to 14 years or a fine, or both.
‘Incredibly broad’ interpretations
But the amendments were rushed through as part of the Budget Implementation Act and are “drafted incredibly broad,” says Banicevic.
“What is quite problematic, I think, from an advisory perspective, is that these provisions are criminal, they are per se, so they don't need to have an impact on competition at all, they're not limited to agreements between competitors… So you do have, I think, some collateral damage in the sense of creating uncertainty about how these provisions are going to be applied.”
“And even if the bureau takes [one] view, quite frankly, that doesn't necessarily stop class-action lawyers from attempting at least to take a different view. And that's really, I think, the set of implications that these amendments put in place.”
“You’d hope it is really limited to that hardcore wage fixing, no-poaching agreements,” says Banicevic.
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In the past, someone in HR at one company may have reached out to someone in HR at another company to discuss things like workplace rules, marketplace trends, employer benefits or industry developments and future plans, says Michael Kilby, partner at Stikeman Elliott in Toronto.
“Those kinds of discussions, as of June 2023, depending on the context, really could become quite risky,” he says.
“It can be the sort of thing that feels relatively harmless or doesn't feel horrible but if you look at the new language, you'd say, ‘No, we should at least be careful and think really hard about whether that's appropriate given the new landscape.’”
It’s important not to be too alarmist, says Kilby, but “I think you're going to see HR departments needing to think through ‘What are we doing today? What do we do? Does Joe or Sally talk to the competitor every now and then or every quarter? Or do we do some sort of benchmarking? And maybe that's OK, maybe we can continue doing it going forward, but we’ve got to think about it a lot more carefully and in a more controlled way.’”
On the face of it, the new provisions prohibit a lot of things that, in ordinary course, employers often do, which seems contrary to the terms of the Competition Act, writ large, says William Wu, a partner at McMillan in Toronto.
“The Competition Act is meant to deal with issues that affect competition, so if we have agreements between employers who are not even competing with each other, for the same type of employees, that makes the provision a bit over-broad.”
Will no-poach agreements be allowed?
With the amendments, the implication is that employers might have to look closely at any normal, ordinary course M&A transactions that have provisions about non-compete, non-solicit as part of the transaction, says Banicevic.
“We think that there are defenses for that, but it's incredibly broadly drafted, and it isn't intended to be limited to agreements between competitors,” she says.
“There may be arguments made that agreements that were previously entered into, but... continue to be abided by… are now a breach.”
It would be difficult to make such an argument if those agreements were in the past and no longer in effect, says Banicevic, “but if it's continuing as an agreement, then certainly there's a risk that that there would be at least enforcement risk under the amended provision as of June 2023.”
But there is an existing provision in the Competition Act, section 45.4, which provides an “ancillary restraint dependence,” says Wu.
“Essentially, what it says is even if you have an agreement that, on its face, contravenes the conspiracy provision, if you can demonstrate that this agreement... is ancillary to a broader and separate agreement that is legal, and this agreement is reasonably necessary for the objective of that broader agreement, then your agreement will not be considered a criminal violation.”
Read more: Recent changes in Ontario – including a ban of non-competition agreements – don’t hold much weight, says one employment lawyer.
It would fall to the employers to demonstrate that their no-poaching agreements are in the context of a larger agreement, he says.
“We have the shifting of burdens now; before, without the amendment, this kind of conduct is not illegal... Now they're, on its face, illegal… so if you get into trouble, you really need to consider whether or not, and how, ancillary defence applies.”
The expectation is that most non-solicits should be able to benefit from that defence, says Kilby.
“You'd say the non-solicit sits within a broader agreement, a non-disclosure agreement, or some other M&A-type agreement... and parties are sharing all sorts of confidential information with each other… and it's reasonable to say, ‘Well, having learned all about our employee group, our employee base, you can't now go use that confidential information that we gave you to try to do this deal to steal all our employees.’”
As a result, it’s hoped that reason will prevail and that practice around non-solicits will continue as it has in the past, he says.
Wage fixing and benchmarking
When it comes to the new rules around wage fixing, that’s an issue employers should be mindful of when it comes to benchmarking, says Wu.
“With the [Competition] Act expanded to the labour and employment market, labour and employment surveys will now be part of the discussion, so when you are sharing information about wages and how many people you're hiring, how many people you're firing, and all that sort of stuff to a third-party surveyor, you need to be mindful of who's getting the information: Do they have safeguards in place? Is the information appropriately anonymized? All that become a relevant consideration.”
To prove a criminal offence, the Crown or the prosecution need to prove that there is an agreement, he says.
“But agreement can be proven through circumstantial evidence, which may include exchange of confidential information. So this is why how confidential information is shared, with who, in what way, can be very important in in a business's risk management and compliance strategy.”
It is another reason to be extra cautious and mindful about how processes are put in place to make sure that no insufficient transparency occurs when you're participating in those types of efforts, says Banicevic, such as third parties aggregating data and making sure it is absolutely anonymous.
“You'd have to really have a careful look at how much transparency you gain by those benchmarking efforts.”
The Competition Bureau may say it’s similar to what already exists under Section 45 of the Competition Act — in maintaining, increasing, control the price for the supply of a product – but it’s different when it comes to terms and conditions of employment, she says.
“And it gets to be incredibly, potentially broad, especially when you're talking about criminal per se, provision... I'm hopeful that this is something that with additional guidance from the Bureau, we can have a bit more of a kind of rink fence around what we expect will be the focus.”
Read more: More than half (55 per cent) of Canadian employers are turning to larger-than-normal increases of wages amid a labour shortage.
In the past, there may have been less rigour or caution around those types of exercises but going forward, employers will want to retain a third-party consultant or expert, says Kilby.
“And there [should] be more thinking about ‘What should we be redacting or aggregating or grouping or anonymizing?’ so as to ensure that a given employer or given company, well, they might have a sense of where they fit within the overall market, don't have too much of a line of sight into what any other individual competitor is doing.”
That may not be an absolute sea change, and be more about best practices in dealing with confidential or sensitive information, he says, but “you can imagine more care, more rigour being brought to a benchmarking-type exercises.”
Preparing for 2023
It’s expected the Competition Bureau will release guidance documents in the coming months, and a larger consultation process on the Competition Act is also predicted at some point, says Wu.
“The most important thing business really should think about is, to the extent that they have agreements with other businesses about their hiring practices and wages and working conditions, things like that, they need to think about... ‘What objectives do those agreements serve?’” he says.
“If they serve an objective that is meant to further their general and other more legitimate business objectives in terms of business collaborations, supply, purchase arrangements, that's probably OK. But then you need to think about whether or not there are ways to maybe curtail the scope of these no-poaching or wage-fixing agreements in hiring practices in a way that's absolutely necessary to achieve your objectives. And if you cannot identify these larger objectives, then you may very well need to reconsider whether or not these agreements should stay in place.”
But it’s important to note that the U.S. is having an “exceptionally” hard time prosecuting employers in this regard, says Banicevic.
“You do wonder, I guess, what the enforcement will look like up here, given that experience in the U.S… [Canada’s Competition] Bureau has had a hard time getting convictions under the existing section 45, and so now to increase the breadth and the uncertainty in the scope, there’s, to my mind, a question about how and whether this is the right focus for them.”
