Section 45(1.1)(b) of the Competition Act
The Competition Act (the “Act”) contains both criminal and civil provisions aimed at preventing anti-competitive practices in the marketplace. In June 2023, the Act was amended to prohibit no-poach and wage fixing agreements between unaffiliated employers.
Section 45(1.1) of the Act states:
“45 (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.”
A no-poach clause can limit one or all parties to an agreement, from poaching or hiring one another’s employees. According to the Enforcement guidance on wage-fixing and no poaching agreements, published by the Competition Bureau of Canada, section 45(1.1)(b) only restricts reciprocal agreements which prohibit all parties to an agreement from hiring one another’s employees. As such, a no-poach clause that prohibits only one party from hiring the other party’s employees, is not in contravention of the Act. The Act prohibits reciprocal agreements that are reached either explicitly or tacitly.
Who can be in of breach of s.45(1.1)(b) and what are the consequences?
Section 45(1.1)(b) only applies to unaffiliated employers. One entity is affiliated with another entity if one of them is a subsidiary of the other, if they are both subsidiaries of the same entity or if each of them is controlled by the same entity or individual (Competition Act, RSC 1985 c C-34, s 2(2)).
The term “employer” has not been defined in the Act. However, according to Competition Bureau of Canada, an employer includes individuals who are human resources professionals, employees, and directors and officers. As such, an agreement between an officer of one corporation and a human resources professional of another corporation would be considered an agreement between employers under section 45(1.1). In this circumstance, the individuals who entered into the agreement may be subject to prosecution.
An employer who contravenes section 45(1.1) may be imprisoned for up to 14 years and/or subject to a fine at the court’s discretion (Competition Act, RSC 1985 c C 34, s 45(2)). Corporations may also be subject to prosecution as a result of an agreement between their respective employees if those employees are acting as senior officers.
Drafting a strong no-poach clause
Not only is it important to not be in contravention of the Act, but it is also important to ensure that the no-poach clause in an agreement is enforceable. A clause with a purpose to restrict competition is unlikely to be upheld by a court.
When drafting a no-poach clause, it is important to keep the following in mind:
- The clause should be one-sided: The first step to drafting an enforceable no-poach clause is ensuring that it is not reciprocal. The clause should be drafted to only protect the party who could potentially be at risk of their employees being hired by the other party.
- The purpose of the clause should be stated: The purpose of the clause should be made clear, so as to ensure that both parties are aware of the reason for the clause. If issues as to the validity and enforceability of the clause arise in the future, having a clear purpose for the clause demonstrates a legitimate interest that is being protected. Examples of purposes for a no-poach clause include but are not limited to, protecting business interests and viability, maintaining a stable and trained workforce and protecting confidential information.
- The clause should be limited to which employees it protects: The clause should explicitly state who the other party may not hire.
- A time frame should be specified and should be reasonable: A time frame indicating how long the no-poach clause is enforceable should be included and should be reasonable. Reasonability is determined on a case-by-case basis and should reflect the realistic requirements of the party who is seeking to protect its interests.
Ultimately, the enforceability of the clause is dependent on the specific circumstances of each business and the interests they are aiming to protect. If you are entering into an agreement and need to protect your workforce, Soloway Wright LLP’s experienced legal team is ready to help. Please contact any member of our Business and Corporate Group for more information.
About the Author: Alicia Chauhan joined Soloway Wright in 2024 as an associate in the Business & Corporate and Corporate Finance and Securities Law groups after articling with the firm. Alicia maintains a general corporate and commercial practice and assists clients with a broad range of corporate/commercial needs including incorporations, financing, asset and share purchases and corporate reorganizations.
