The purpose of this article is to brief the public, especially employers, on amendments to The Competition Act and provide an overview of how these changes may impact on their business and associated contracts.
Amendments were made to the Competition Act on June 23, 2022, and came into force on June 23, 2023. The one-year gap between 2022 and 2023 was intended to give enough notice to employers to ensure their compliance with the updated law. It is important to ensure compliance with the new law as the penalty for violation of this new law includes imprisonment for up to fourteen years and/or a fine, as decided by the court.
Discussion & Analysis
An overview of the changes
The amendments apply to buy-side contracts, which are distinct from supply-side contracts. A buy-side contract is usually handled by the procurement department and consists of arrangements to purchase services or goods from the seller in exchange for compensation, such as money. Alternatively, a supply-side contract consists of contracts involved with selling goods and services to the seller. The amendments introduce criminal charges which apply to buy-side contracts; previously, such criminal charges only applied to supply-side agreements between competitors.
The amendments under subsection 45 (1.1) state the following:
Conspiracies, agreements or arrangements regarding employment
(1.1) 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 above provision is distinct from the supply-side criminal offences because the supply-side offences only apply to competitors. However, the new amendments for buy-side contracts also apply to non-affiliated employers i.e., there is no need to prove the employers are competitors.
It is also important to note the term “employer” includes any representative of the employer, such as a director, an officer, an agent, or an employee, such as a human resource professional. In line with the concept of vicarious liability, both an employee and the correlating employer or corporation can be taken to court for entering into an illegal agreement.
The provision makes two types of agreements illegal: (a) “wage-fixing” agreements, and (b) “no- poach” agreements. The former intends to make it illegal, and the employer criminally responsible, if they collaborate with other employers to influence salaries or wages, either by fixing them, maintaining them, decreasing them, or controlling them. Employers are also prohibited from influencing other terms and conditions of employment. This all falls under the category of “wage- fixing”.
The provision also makes it illegal for employers to agree they will refrain from hiring each other’s employees as these “agreements” limit the hiring opportunities for employees. This action falls under the category of “no-poach agreements”. These no-poaching agreements do not apply to one-sided or unilateral agreements; rather, they only apply when two employers seem to have reached a consensus, either implicitly or explicitly, that neither of the employers will hire the other employer’s employees.
It is important to note, according to subsection 45(3), proof of impermissible buy-side agreements can be established through circumstantial evidence and need not be codified in a formal written agreement. However, to prove a charge, the implementing agency will need to prove beyond a reasonable doubt the existence of such an informal or formal agreement between the employers.
Exceptions to the new law
This law does not apply to affiliated employers, such as when multiple corporate entities are controlled or owned by the same parent company.
This law does not apply to situations where such agreements are part of a legitimate collaboration, promote a strategic alliance, or are implemented for the sake of a joint venture. Thus, exceptions to this law are available when such an agreement which restrains competition is essential to the formation of the agreement. For example, a specific situation when the law is excepted is during the purchase of a business.
SUMMARY: WHAT DOES THIS MEAN FOR EMPLOYERS AND THEIR BUSINESSES?
Moving forward, businesses are advised to review any terms and conditions of employment that influence a prospective or current employee’s decision to agree to an employment contract. It is important to note the above legislative changes do not exclude non-solicitation or non-compete clauses. Rather, they only prohibit explicit or implicit commitments to another company if these commitments result in mutual restriction of employee movement.
Thus, moving forward, an employer will need to be careful about sharing information during collaborative activities, such as if they engage in benchmarking employment terms, or engaging in monitoring each other’s employment practices, to ensure they are not contravening subsection 4.5(1.1) mentioned above.
The amendments mentioned above are not retroactive (i.e., they do not apply to actions taken prior to June 23, 2023). However, older agreements should be updated by June 23, 2023, in order to ensure they are in compliance with the new amendments. If not already done, employers are advised to review their contracts and practices by June 23, 2023, to ensure they are in line with the amendments to the Competition Act.
Employers and businesses should also pay special attention to ensure human resource professionals, senior executives, and others who communicate with other employers, and/or influence decisions about terms of employment and decision about hiring are aware of these amendments.
We at Procido LLP are prepared to review your contract precedents to ensure you are not afoul of these new changes. Please do not hesitate to reach out if further legal assistance is required.
This publication is provided as an information service and may include items reported from other sources. We do not warrant its accuracy. This information is not meant as legal opinion or advice. Contact Procido LLP (www.procido.com) if you require legal advice on the topic discussed in this article.