The dangers of no-poaching and other agreements between employers

One of the core purposes of Canada's Competition Act is to prevent collusive agreements between competitors

The dangers of no-poaching and other agreements between employers

by Mark Katz and Anita Banicevic are partners in the Competition, Antitrust & Foreign Investment group at Davies Ward Phillips & Vineberg LLP in Toronto.

The Canadian Competition Bureau (Bureau) has expressed concerns over possible anti-competitive consequences of certain types of agreements between employers that could affect employees, including agreements not to hire each other’s employees (known as no-poaching agreements).

Other types of agreements that could raise issues include agreements not to compete on wages or other terms of employment (wage-fixing agreements) and agreements to exchange information on compensation and other employment-related matters (information-sharing agreements).

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Canadian businesses and their HR professionals must be sensitive to these concerns and include employee-related matters in their competition compliance thinking and training.

Competition Concerns in the Employment Context

One of the core purposes of Canada’s Competition Act (Act) is to prevent collusive agreements between competitors that distort competition and harm members of the public.

The Act has two main provisions that target anti-competitive agreements. The first (section 45) makes it a criminal offence for competitors to enter into three specific types of agreements: (1) to fix prices; (2) to allocate markets; and (3) to restrict output. The second provision (section 90.1) prohibits all other types of agreements between competitors that are likely to result in a “substantial prevention or lessening of competition.”

In contrast to the section 45 offence, the prohibition in section 90.1 is a “civil reviewable matter.” This means that the Bureau has a positive obligation to show evidence of anti-competitive harm, rather than the harm being assumed, as is the case with the section 45 criminal offence. It also means that violations are punishable by orders prohibiting the impugned conduct going forward, and not by fines and imprisonment as with the section 45 offence.

Competition authorities have not historically focused on agreements affecting competition in labour markets as an enforcement concern. However, that has now changed, mainly because of initiatives taken by competition authorities in the United States, which have made it a priority to target alleged anti-competitive conduct impacting employees.

The U.S. example is one reason why the Bureau issued a statement in November 2020 (Statement) explicitly recognizing that agreements between competitors affecting employees, such as non-poaching agreements, may raise “serious competition issues” in labour markets, and warning that it regards such agreements with concern. The Bureau also clarified that it would proceed in such cases under the Act’s civil prohibition against anti-competitive agreements rather than as criminal offences. The reason for this approach is technical, based on the specific wording of section 45, and not because the Bureau regards anti-competitive agreements affecting employees as any less of a serious issue.

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Implications for HR Professionals

The Bureau’s Statement means that HR professionals in Canada must now consider issues of competition law compliance that were never a real concern before. Here are a few key takeaways to consider:

  1. Be aware that potential issues can arise in any industry. In the United States, enforcement proceedings have been brought against employers in a wide variety of businesses, such as the high-tech sector, health care, academia, fast-food franchises and professional sports.
  2. Audit your company’s HR practices to see if any of the following red-flag conduct exists:
  • Agreements with other companies about employee salaries, benefits or other terms of compensation and employment;
  • Agreements with other companies about not soliciting or hiring that other company’s employees;
  • Exchanges with other companies of information about employee compensation or terms of employment; or
  • Discussions of the above topics with other companies, including during trade association meetings, social events or in other non-professional settings.
  1. Remember that the definition of who is a “competitor” may be different for labour markets and may extend beyond companies you would normally regard as competitors for business purposes. Therefore, the scope of potential risk may be broader.
  2. Be careful what you write. In the United States, authorities have relied on internal company emails as the basis for enforcement proceedings.
  3. Ensure that internal compliance policies incorporate a discussion of the potential application of the Act to employee-related issues and expand competition compliance training to include HR personnel.

It may not always be clear if and when conduct crosses the line into prohibited activity. In those situations, consider engaging experienced competition counsel who can assist in risk assessment and in designing appropriate compliance policies and procedures. Given the potential repercussions – intrusive prohibition orders affecting the company, the time and cost of defending enforcement proceedings and the potential loss of reputation – HR professionals must take these issues seriously and mitigate exposure to the new risk of liability they now face.

 

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