Wage-fixing and no-poaching agreements officially became illegal in Canada on June 23, 2023. It was part of the amendments to the Competition Act and the Government of Canada’s Budget Implementation Act, 2022 (Bill C-19).
Did you know about this change? Many employers need to be made aware of these changes or need clarity surrounding wage-fixing and no-poaching agreements. Some may unknowingly be engaging in these practices.
According to our legal recruiters in Toronto, this new law could have significant repercussions for companies that continue to engage in wage-fixing and no-poaching agreements.
Greater transparency surrounding salary, compensation, and employment agreements is needed and this new agreement is a step in the right direction.
“The wage-fixing and no-poaching amendments coming into force is an important step in the ongoing modernization of Canada’s competition law. With these enforcement guidelines, we’re providing businesses with the certainty and predictability they need to ensure that they’re in full compliance with the law,” says Matthew Boswell, Commissioner of Competition, Government of Canada.
This blog will help employers better understand:
- What are wage-fixing and no-poaching agreements
- Examples of wage-fixing and no-poaching agreements are
- The negative impact and legal implications
What Is Wage Fixing?
Wage fixing happens when two or more employers agree to fix or set wages for employees at a predetermined level. They do this to keep wages below competitive levels or to avoid paying fair compensation for labour.
This practice is typically done to eliminate competition among employers for workers and can result in reduced wages and limited job opportunities for workers. Wage fixing is prohibited by antitrust laws in many countries as it violates principles of fair competition and undermines workers’ rights.
An Example of Wage Fixing
Three local marketing firms have concerns about rising salary costs. But they all need to hire more people. They meet together and agree to cap their salary offers to new employees they hire at $50,000, even though this number is less than the industry average. While this agreement will help these companies maintain lower payroll costs, they are failing to compete for the best talent. This can potentially hurt the local marketing industry.
Why is Wage Fixing Bad?
Wage fixing can have a negative impact on the economy for several reasons:
- Labour Rights Violations: It undermines the fundamental right of workers to negotiate fair wages based on their skills, experience, and market demand. When employers collude to fix wages, workers are deprived of the opportunity to earn their true market value.
- Reduced Economic Mobility: Wage fixing limits upward mobility for workers by artificially suppressing wages. Without the ability to negotiate higher salaries based on merit or demand, employees may remain stuck in lower-paying jobs, hindering their ability to improve their standard of living.
- Decreased Competition: Fixing wages eliminates competition among employers for talented workers. This lack of competition can lead to stagnation in wages and benefits, as companies have less incentive to offer competitive compensation packages to attract and retain skilled employees.
- Salary Inequality and Disparity: Wage fixing exacerbates income inequality by disproportionately benefiting employers and executives at the expense of workers. When wages are artificially depressed, the gap between high earners and low earners widens, further worsening socioeconomic disparities.
What Are No-Poaching Agreements?
No-poaching agreements are arrangements between two or more companies where they agree not to hire each other’s employees. These agreements restrict competition in the labour market by preventing companies from recruiting or hiring employees from their competitors. This practice can limit job opportunities for workers and suppress wages by reducing talent competition. No-poaching agreements can be seen as a form of collusion to restrain competition. In recent years, there has been increased scrutiny and enforcement action against such agreements by regulatory authorities in several countries.
An Example of No-Poaching Agreements
Two industry-leading engineering firms meet together and agree not to hire each other’s employees. They believe this is a good idea because they won’t have to worry about competing for talent with each other. However, when these firms need to hire, they actively poach other firms people, weakening their competitors and taking a stronghold in industry talent. This reduces the need for companies to compete for talent.
What are the Negatives of No Poaching Agreements?
Like wage-fixing, no-poaching agreements can negatively impact the economy in many ways, such as:
- Reduced Job Mobility: By agreeing not to hire each other’s employees, companies limit the ability of workers to seek better opportunities elsewhere. This reduces job mobility and can trap employees in positions with limited advancement prospects or inadequate compensation.
- Wages Suppression: No-poaching agreements can result in suppressed wages because they eliminate competition for employees among companies. When employers don’t have to worry about losing their employees to competitors offering better pay, they have less incentive to offer competitive salaries and benefits.
- Limited Career Development: Employees may find it difficult to advance their careers or gain new skills and experiences without the option to move to other companies. This can lead to stagnation and hinder professional growth.
- Market Distortion: No-poaching agreements distort the labour market by artificially constraining the flow of talent between companies. This can lead to inefficiencies in resource allocation and hinder innovation, as companies may not have access to the best talent available.
What are the Penalties For Wage Fixing and No Poaching Agreements?
Getting caught wage-fixing or having a no-poach agreement is no joke. It’s a serious change that can lead to
- Imprisonment for up to fourteen years, and/or
- A fine of up to $25 million. Fines are set at the discretion of the court.
A Final Word About Wage Fixing and No-Poach Agreements
Wage fixing and no-poach agreements are not only illegal, they are detrimental to the Canadian economy. They can undermine people’s ability to make a competitive wage and advance their careers. They can also limit innovation and reduce an industry’s or region’s ability to attract the top talent available.
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