From: Peter Glossop
To: Canada’s competition law overseers
Date: July 9, 2021
Re: A New Approach to Wage-Fixing and Anti-Poaching Employer Deals
Canada is “out of sync” with the United States when it comes to punishing employers who agree to fix workers’ wages or agree not to poach employees from each other, Matthew Boswell, the Commissioner of Competition, told a Commons committee last December.
Such agreements are prosecuted criminally in the US under a clear enforcement policy. However, the Commissioner has concluded that Canada’s anti-collusion legislation in section 45 of the Competition Act does not permit this approach and that civil action is the only recourse. This, he said, “is a serious issue for Canadian workers.”
There are sound legal and economic reasons to permit a criminal enforcement approach for wage-fixing and no-poach agreements:
- Since 2009, the US and Canada have increasingly converged in other aspects of competition law and policy. Their intertwined economies should be aligned on this issue.
- In particular, in section 45 of the Act, Canada adopted a US-style “per se” approach to criminalize collusive price-fixing, market allocation and output restriction. This approach is a more natural fit for wage-fixing and no-poach agreements than a civil approach which assesses whether such agreements are legitimate collaborations that should be evaluated under a competitive effects standard.
- The economic harm of wage-fixing and no-poach agreements can be significant. Suppressed wages can cost employees thousands of dollars a year and no-poach agreements can be even more devastating, stifling career choices for workers and depriving innocent employers of new talent.
- Collusion on wages and hiring inhibits competitive forces that may be driving wages upwards, and can dampen innovation and other market forces driving employees to shift employers.
- An employer can protect trade secrets and intellectual property through a non-compete agreement with an employee, and has no need to enter into a no-poach agreement with a competing employer to do so.
Under the Commissioner’s updated “Competitor Collaboration Guidelines,” a wage-fixing or no-poach agreement can only be challenged on a civil basis (and only by the Commissioner) as an anti-competitive agreement under section 90.1 of the Competition Act. However, there are several reasons why this is not the right tool:
- Section 90.1 doesn’t allow the Competition Tribunal to award damages to affected employees for suppressed wages, or even to impose a fine on colluding employers. On its own, the Tribunal can only order colluding employers to stop.
- Only the Commissioner can initiate a proceeding; employees may not do so directly.
- The conduct in question must prevent or lessen competition substantially in a market, an unnecessarily onerous requirement and one which does not exist under section 45.
- Since a proceeding under section 90.1 is civil in nature, and the sole remedy is a cease-and-desist order, it lacks the deterrent value and opprobrium associated with a criminal case.
How should the Act be amended to address this issue?
The simplest approach is to broaden section 45 to capture employer agreements to fix, maintain, decrease or control salaries, wages or terms and conditions of employment, or that constitute a refusal to solicit or to hire employees or potential employees.
This approach would target only collusion concerning employees and would not capture legitimate cost-saving procurement agreements, such as buying groups.
The advantages of these amendments include:
- In addition to (or in lieu of) a prosecution by the Crown, affected employees could bring their own civil (e.g., class) action for compensation.
- Criminal proceedings would not require the Crown (or employees) to show competition has been lessened or prevented, simplifying enforcement.
- The possibility of criminal proceedings will tend to deter employers from such agreements.
A more complex and less effective approach is to amend section 90.1 to provide that wage-fixing and no-poach agreements between employers may be subject to fines, an order to compensate affected employees and to cease the conduct in question.
The Act already provides for penalties and compensatory orders for cases of deceptive marketing practices, and the Tribunal may impose a penalty of up to $10 million for a first case and require the defendant to pay restitution.
Whether through amending section 45 or section 90.1, the next package of amendments to the Act should address the lack of protection for Canadian workers in relation to wage-fixing and no-poach agreements.
Peter Glossop is a recently
-retired competition lawyer.
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The views expressed here are those of the author. The C.D. Howe Institute does not take corporate positions on policy matters.