Jun 9, 2023
On June 23, 2023, amendments to the Competitors Act will take impact (the brand new felony provision) which is able to prohibit the next preparations/agreements between unaffiliated employers (topic to sure defences):
- preparations/agreements between employers (whether or not or not they compete) whereby the employers agree to not rent one another’s staff (a two-way, reciprocal no-poach settlement)
- preparations/agreements between employers (whether or not or not they compete) that serve to repair, preserve, lower or management phrases and situations of employment (a “situations of employment” settlement)
The brand new felony provision is per se unlawful and a violation constitutes a felony offence punishable by as much as 14 years imprisonment or a positive on the discretion of the courtroom, or each. Each people and companies could be discovered responsible of an offence. Non-public events may begin damages actions primarily based on an alleged violation of the brand new felony provision.
The brand new felony provision requires that franchisors rigorously take into account widespread provisions in lots of franchise agreements via which the franchisor requires the franchisee to (i) impose sure situations on its staff and/or to enter into prescribed types of agreements with its staff and/or (ii) agree to not solicit or rent staff of the franchisor or different franchisees throughout and following the time period of the franchise settlement.
The Competitors Bureau (the Bureau) launched updated guidance on Might 30, 2023 (the Steerage) on its deliberate enforcement of the brand new felony provision. The Bureau has confirmed that the brand new felony provision will apply to
- agreements made between employers (regardless of whether or not such employers are thought of opponents) on or after June 23, 2023
- conduct that reaffirms or implements agreements that have been made earlier than that due date (together with renewals or extensions)
The prohibition on no-poach agreements prohibits two-way non-solicit/no-hire agreements between employers, whereby employers agree to not solicit or rent one another’s staff. Franchising presents a considerably distinctive contractual framework in that the related provisions in franchise agreements usually prohibit the franchisee from hiring the staff of the franchisor or of different franchisees.
Primarily based on the Steerage, many widespread franchise settlement provisions won’t be thought of no-poach agreements lined by the brand new felony provision. First, franchise agreements usually embrace a one-way prohibition, which means that the franchisor doesn’t agree to not poach the franchisee’s staff. Second, the Steerage has clarified that the place a franchisor enters into agreements with every of its franchisees that the franchisee won’t poach the staff of different franchisees and the franchisees have a standard understanding that every franchisee has entered into the same settlement, this won’t be seen as an settlement amongst the franchisees until there’s proof of an intention between franchisees to enter right into a no-poaching settlement with one another.
If a franchise settlement accommodates a no-poach settlement that may very well be captured by the brand new felony provision (i.e., an settlement that’s reciprocal) that the franchisor intends to implement, the franchisor should fulfill itself that the ancillary restraints defence, mentioned beneath, will apply.
‘Circumstances of employment’ agreements
You will need to observe that whereas dialogue and commentary relating to the “situations of employment” settlement has been targeted on the prohibition on “wage-fixing”, the scope of the brand new felony provision goes past agreements on wages. The Steerage describes “phrases and situations of employment” to incorporate the obligations, advantages and insurance policies related to a job: “This will embrace job descriptions, allowances reminiscent of per diem and mileage reimbursements, non-monetary compensation, working hours, location and non-compete clauses, or different directives which will limit a person’s job alternatives.” The Steerage focuses on whether or not the phrases and situations imposed on the worker may have an effect on their resolution to remain or go away a job.
Once more, if a franchise settlement features a “situations of employment” settlement, the ancillary restraints defence could apply. This can require a contextual evaluation of the restraint in addition to its historical past, goal and position within the total relationship.
Ancillary restraints defence
The Competitors Act supplies for a defence (referred to as the ancillary restraints defence or ARD) that’s accessible the place an individual establishes on a stability of chances that
- an settlement that’s lined by the brand new felony provision is
- ancillary to a broader or separate settlement or association that features the identical events
- instantly associated to or fairly essential for giving impact to the target of that broader settlement/association
- the broader settlement/association thought of alone doesn’t contravene the brand new felony provision
The Steerage acknowledges that no-poach agreements and “situations of employment” agreements can have an necessary position in stabilizing and defending events’ enterprise pursuits in the middle of advancing reliable pro-competitive aims and expressly references the position these agreements can play in a franchise mannequin. Nonetheless, the Bureau is cautious to level out that it could implement the brand new felony provision the place the provisions are clearly broader than essential.