With Ontario legislation rendering most noncompetition clauses for new employment contracts unenforceable and other provinces considering doing the same, some employers who were already having difficulty retaining employees have looked to agreements with other employers in the industry to not poach each other’s staff.

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Howard Levitt: Criminalization of wage fixing raises the stakes when it comes to employee retention Back to video

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Many also have arranged with competitors to agree between them to wages for employees, with different wages at certain levels.

Such agreements will not only increase the chance that they will retain their employees because they cannot be wooed away, but will prevent their having to increase employees’ salaries to compete with higher offers.

These agreements have now been rendered criminal and subject to 14 years in jail and a fine to be determined by the court. Any employer who agrees to wage fixing or non-poaching with another employer is subject to those sanctions as a result of an amendment to the Competition Act, which formerly dealt with price, not wage, fixing. Not only is the company liable to prosecution, but any individual entering into such an agreement is similarly subject.

It is not just agreements fixing wages but any other terms of employment including job descriptions, hours of work, maximum bonuses, location or anything that will affect a worker’s decision to become or remain employed by that employer.

Notably, this restriction does not apply to independent contractors, so employers can conspire to fix wages of their independent contractors and agree not to hire them away from each other. 

Not only is there now criminal liability for non-poaching and wage-fixing agreements, but there could also be a civil lawsuit, potentially a class action.

There is a also defence to this provision when it is necessary for business transactions such as franchise agreements or mergers and some provider-client relationships such as staffing contracts. In other words, if these agreements are part of a larger agreement which is unrelated in its purpose to the wage agreements and non-hiring or solicitation that can be an exception.

The Competition Bureau will scrutinize this larger agreement both to ensure that it is legitimate and to determine whether the wage-fixing and non-poaching agreement is a necessary part of the main agreement. When the Bureau analyzes the acceptability of this as part of such a larger agreement, the more limited in time and scope the wage and poaching agreement is, the more likely it will not be ruled illegal. Another exception to this legislation is collective bargaining agreements where more than one employer is involved. This new section also does not affect affiliated companies with common ownership and control.

Interestingly, between this new regulation and issues such as wrongful dismissal, payroll taxes, overtime and other employment regulations, this new legislation is another reason for employers to hire independent contractors, whenever possible, rather than employees.

Of course, that is easier said than done. Employers need employees who know their business and work regularly for them each week. Employers who require this of their workers but create the façade of an independent contractor relationship — i.e. through invoicing, incorporating, having contracts stipulating that the workers are independent contractors, having them work independently and having them supply much of their own equipment — will still find that they are successfully sued for wrongful dismissal and liable for excess hours of work and overtime claims if the employee decides to challenge their status, usually when their relationship is terminated. It is, after all, not just employers who play the game of calling workers independent contractors when they are not. Workers are happy claiming actual or fictitious “business” expenses — that is, until they are fired and realize the value of a wrongful dismissal action.

And employers sometimes find that they can only hire workers if they categorize them as independent contractors.

But added to all the reasons making it difficult to have employees, employers now have this, much more serious, criminal liability if they indulge in wage fixing or non-poaching agreements with other employers.

It’s tough to be an employer in Canada.

Howard Levitt is senior partner of Levitt Sheikh, employment and labour lawyers with offices in Toronto and Hamilton. He practices employment law in eight provinces. He is the author of six books including the Law of Dismissal in Canada.