Anonymised, illustrative composite. Two regional carriers opened exclusive talks and signed a clause promising not to hire each other’s drivers. Competition Act s.45(1.1) does not care whether the deal ever closes, and does not care that the clause is standard.
At a glance
Two regional less-than-truckload carriers — call them the buyer and the target — operate overlapping routes in the same three provinces and compete for the same pool of licensed drivers, who are chronically hard to hire in the corridor both companies serve. The buyer approached the target about an acquisition, and the parties signed a letter of intent granting the buyer 90 days of exclusivity to complete diligence before either side could talk to anyone else.
Buyer’s counsel used the firm’s standard LOI template. Among the confidentiality and exclusivity terms was a clause, drafted years earlier and never revisited, providing that neither party would “solicit or hire any employee of the other party” during the exclusivity period and for twelve months after the letter terminated. Nobody treated it as a live issue — it read like standard deal housekeeping, the kind of clause that appears in essentially every exclusivity letter in the country.
It is not housekeeping any more. Since a 2022 amendment to the Competition Act took effect, a mutual no-hire agreement between two employers is a stand-alone criminal offence, independent of whether any transaction ever happens. Competition Act s.45(1.1) provides: “Every person who is an employer commits an offence who, with another employer who is not affiliated with that person, conspires, agrees or arranges … (b) to not solicit or hire each other’s employees.”
The buyer and the target are employers of drivers in the same market. Neither is affiliated with the other — nothing has closed, no shares have moved, and the Act’s own definition of affiliation turns on control: one corporation is affiliated with another only where it holds, directly or indirectly, securities carrying more than 50% of the votes needed to elect a majority of directors. A signed exclusivity letter conveys none of that. So on the plain words of the clause and the plain words of the subsection, the moment the LOI was signed, both companies’ controlling individuals were exposed to an indictable offence — a fact wholly unrelated to whether the acquisition ever completes.
The deal itself was modest by the standards that usually attract regulatory attention: $28,000,000, well under any merger-notification threshold, the kind of transaction nobody expects competition counsel to touch. That is exactly the point. s.45(1.1) is not a merger-review provision with a size-of-transaction test; it is a criminal conspiracy offence that applies to the clause on its own terms, at any deal size, whether or not the transaction ever closes.
The exposure side of the ledger has no cap tied to deal value either. Under s.45(2), conviction carries “imprisonment for a term not exceeding 14 years or … a fine in the discretion of the court, or to both” — the same maximum that applies to outright price-fixing between competitors.
Three subsections, read together, and the second is the one deal teams miss. First, the offence itself: s.45(1.1)(b), quoted above, reaches an agreement between non-affiliated employers not to solicit or hire each other’s staff. It sits beside s.45(1.1)(a), which reaches agreements to fix or control wages and benefits — a related but separate paragraph, engaged by different conduct.
Second, the exception deal teams reach for instinctively does not apply. s.45(6) provides: “Subsection (1) does not apply if the conspiracy, agreement or arrangement (a) is entered into only by parties each of which is, in respect of every one of the others, an affiliate.” Read the opening word: subsection (1). Not subsection (1.1). The affiliate exception was drafted for price-fixing and market-allocation conduct between competitors under s.45(1); Parliament did not extend it to the employment-conspiracy paragraph added beside it. So even once the deal closes and the companies become affiliates, that later affiliation does nothing for a no-hire agreement struck while they were still separate — and it does nothing for the agreement going forward either, since s.45(6) simply is not available to subsection (1.1) conduct at any time.
Third, the actual rescue: s.45(4). “No person shall be convicted of an offence under subsection (1) or (1.1) … if (a) that person establishes, on a balance of probabilities, that (i) it is ancillary to a broader or separate agreement or arrangement that includes the same parties, and (ii) it is directly related to, and reasonably necessary for giving effect to, the objective of that broader or separate agreement or arrangement; and (b) the broader or separate agreement or arrangement, considered alone, does not contravene that subsection.” An LOI no-hire clause tied to a genuine acquisition negotiation has somewhere to attach that defence — the acquisition itself is the broader agreement. A no-hire clause with nothing behind it, in an NDA for a deal that goes nowhere, has nothing to attach to.
Buyer’s counsel did not wait for closing to fix the exposure, since closing changes nothing about a clause already signed. The clause was narrowed mid-exclusivity to the roughly two dozen dispatch and terminal-management staff each side actually needed uninterrupted through diligence, with the post-termination tail cut from twelve months to four, and recited its own purpose — letting each side share scheduling data during diligence without losing the staff who understood it — language aimed at the s.45(4) ancillary-restraints test.
That narrowing improves the odds under s.45(4); it does not resolve the question. Whether a given covenant is “directly related to, and reasonably necessary for” the underlying deal is its own analysis, run to a conclusion in the sale non-compete that needed the ancillary restraints defence. This file is the earlier, more common trap: an LOI-stage clause nobody thought to check at all.
Leaving the clause as drafted changed nothing about the deal economics but left both principals carrying personal criminal exposure — up to 14 years’ imprisonment — for a paragraph neither team thought unusual. s.45(1.1) is a per se offence rather than one turning on proven market effect: there is no “it never actually stopped anyone from being hired” defence on the face of the section.
The tell was the date on the template. The no-hire clause had been in the firm’s LOI precedent since long before June 23, 2023, when s.45(1.1) came into force following a 2022 amendment to the Act. Nobody had revisited a boilerplate paragraph against a criminal-law change that took effect after the precedent was last updated — the clause was not new, and that is exactly why it went unexamined. A no-hire or wage clause drafted before mid-2023 is not evidence it is safe; it is evidence nobody has checked it since the law changed.
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