The Canadian Franchise Association (CFA) is pleased to announce another advocacy victory in protecting the franchise business model in Canada and the CFA community. This bulletin aims to provide you with essential information on the changes to the Competition Act that will make wage-fixing and no-poaching agreements illegal under the criminal conspiracy provision (section 45) and highlight the influence of the CFA’s advocacy work in shaping the enforcement approach to the new prohibitions.

The criminalization of wage-fixing and no-poaching agreements in franchising is problematic as it fails to recognize the legitimate business arrangements and restraints inherent in the unique franchisor-franchisee relationship, where standardized agreements and collaborative efforts are necessary to ensure stability and success of franchise systems by maintaining operational standards and uniformity across franchise locations.

BACKGROUND

On May 30, following public consultations in respect of draft guidelines published in January of this year, the Competition Bureau (the “Bureau”) issued its final wage-fixing and no-poaching enforcement guidelines (the “Final Guidelines”). They describe the Bureau’s intended enforcement approach to amendments to the conspiracy provision (section 45) of the Competition Act, which come into effect on June 23, 2023, that will make it a criminal offence for unaffiliated employers to agree:

• to fix, maintain, decrease or control wages or other terms of employment; or
• to refrain from hiring or trying to hire one another’s employees.

In addition, also beginning on June 23, 2023, all fines for offences under the conspiracy provision—including agreements to fix prices, allocate markets, restrict supply, fix wages or refrain from hiring—will be determined at the court’s discretion. Prior to this amendment, fines were capped at a maximum of $25 million.

A link to the Final Guidelines can be found here.

ADVOCACY SUCCESS

The CFA’s advocacy work, led by the dedicated members of the Competition Act Subcommittee of Davit Akman, Darrell Jarvis, Scott Munnoch, and chaired by Larry Weinberg, Senior Partner of Cassels Brock & Blackwell LLP, has played a pivotal role in shaping the Final Guidelines. Our contributions through the consultation process resulted in several important changes to the draft guidelines, including:

• Recognition of Franchise Agreements: The Final Guidelines acknowledge the importance and legitimacy of labour-related restraints in various business agreements and arrangements. Franchise agreements have been added to the list of business agreements, alongside merger transactions, joint ventures, and strategic alliances, where the Bureau will generally not pursue a criminal investigation unless the wage-fixing or no-poaching clause in issue is clearly broader than necessary (or the underlying business agreement or arrangement is a sham).

• Clarification on Agreement Reaffirmation: The Final Guidelines provide clarity on when the Bureau will consider parties to have taken steps to reaffirm or implement an agreement made before June 23, 2023. It specifies that at least two parties must reaffirm or implement the restraint for the Bureau to establish the consensus or meeting of the minds required before a finding of liability can be made, alleviating concerns about liability triggered by one party’s action.

• Protection for Franchisees: The Final Guidelines abandon the draft guidelines’ position that separate franchise agreements prohibiting franchisees from poaching each other’s employees would, in and of themselves, likely breach the new no-poaching prohibition. Instead, the Final Guidelines clarify that franchisees’ mere awareness of parallel standard franchise agreements ordinarily will not raise concerns, unless there is evidence of an intention between franchisees to enter into a no-poaching agreement with each other.

• Empowering Franchisees: The Final Guidelines confirm that franchisees generally have the ability to establish systems among themselves to recoup training costs from a poaching employer.  However, the compensation must be reasonably related to training costs and not disadvantage employees’ opportunities relative to external candidates.

• Scope of Wage-Fixing Prohibition: While the Final Guidelines have not provided clarification on the scope and application of the wage-fixing prohibition (which the Bureau says applies to agreements between unaffiliated employers in respect of ‘terms and conditions’ of employment that could affect a person’s decision to enter into or remain in an employment contract), the Bureau has indicated that it may revisit these guidelines in the future, taking into account experience, changing circumstances, and legal developments. The CFA and the Competition Act Subcommittee will continue to monitor developments and actively engage with the Bureau to ensure our members’ voices are heard, including addressing concerns regarding the overbreadth of the Bureau’s enforcement approach to the wage-fixing prohibition.

As the new provisions come into effect on June 23, 2023, we urge all members to familiarize themselves with the Final Guidelines. They offer useful insights into the Bureau’s enforcement approach and can be accessed through the following link here.

The CFA extends its sincere appreciation to the members of the Competition Act Subcommittee (Larry Weinberg, Subcommittee Chair; Davit Akman; Darrell Jarvis; Scott Munnoch) for their dedication and volunteered time and work in shaping these changes. This achievement showcases the strength the CFA community’s voice in advocating on behalf franchisors and franchisees.