Three add-ons in eighteen months, one brand

The situation

Over eighteen months, a platform completed three add-on acquisitions of previously independent, locally competing service depots — $900,000, $650,000 and $1,200,000, a combined $2,750,000 — and set out to merge all three under one brand, with 34 technicians moving onto shared dispatch and scheduling systems. See the bolt-on acquisition glossary entry for the structure each add-on followed.

The problem

During the integration period, the three former owners — now general managers of their respective legacy depots, but still, on paper, principals of three separate corporate entities for several more weeks — agreed informally, by group text, not to solicit each other's technicians for twelve months, to avoid a poaching war disrupting the rebrand. The arrangement was made independently of, and went further than, the properly negotiated non-solicitation covenants already sitting inside each of the three definitive purchase agreements.

The numbers

Section 45(1.1) of the Competition Act makes it an offence for an employer to agree with “another employer who is not affiliated” not to solicit or hire each other's employees. The penalty on conviction, under s.45(2), is indictable and reaches “imprisonment for a term not exceeding 14 years or to a fine in the discretion of the court, or to both.” With no statutory cap on the fine and a fourteen-year ceiling on imprisonment, the exposure on a 34-person no-poach arrangement between what were, at the time of the text thread, three still-separate employers was not theoretical.

The rule that decided it

Section 45(4) preserves an ancillary restraints defence where the restraint “is ancillary to a broader or separate agreement…that includes the same parties” and is “directly related to and reasonably necessary” for it — which is exactly what a non-solicitation covenant inside a genuine share or asset purchase agreement is built to be. The three depots' actual purchase agreements each carried defensible covenants of that kind. The group-text arrangement did not: it stood on its own, agreed after two of the three closings, among people who were not yet one employer.

The outcome

Counsel's fix addressed both the corporate and the competition-law problem at once. Under CBCA section 184, a vertical or horizontal amalgamation of wholly-owned subsidiaries of the same holding company can proceed “without complying with sections 182 and 183” — no shareholder vote, no separate amalgamation agreement. Short-form amalgamating the three depots into a single CBCA entity before finalising any no-poach terms converted what had been an agreement between separate employers into one employer's own internal HR policy — entirely outside s.45(1.1)'s scope, which by its own terms requires “another employer.” The informal texts were replaced with one written policy inside the now-single company.

For the governance mechanism behind the founders' post-close roles, see a bolt-on that broke the platform's service model.

What it would have cost otherwise

The Act's own maximum — up to fourteen years' imprisonment, or a fine set entirely at the court's discretion with no statutory ceiling — is stated in the section itself, not estimated here. Whatever a real prosecution and conviction would ultimately have cost in penalties, it would have been layered on top of legal fees, reputational damage across a newly rebranded platform, and a distraction from the integration the roll-up was actually trying to complete. Restructuring the corporate entity before the arrangement was finalised cost a modest amount of legal drafting time; it foreclosed the exposure entirely rather than managing it.

The tell

The tell was the word “we” in a group text sent among three people who were, for several more weeks, still three separate legal employers: “we agreed not to poach each other's guys.” Section 45(1.1) does not care how informal the channel is or how sensible the business reason feels — an agreement between separate employers not to solicit each other's staff is exactly what it was written to catch, whether it is in a signed contract or a text thread.

Takeaways

• • Competition Act s.45(1.1) makes a no-poach or wage-fixing agreement between unaffiliated employers a criminal offence, carrying up to fourteen years' imprisonment on conviction — regardless of how informal the agreement is.
• • The s.45(4) ancillary restraints defence protects a non-solicitation covenant properly drafted inside a genuine purchase agreement; it does not extend to a freestanding side arrangement made independently of that agreement.
• • A CBCA s.184 short-form amalgamation of commonly held subsidiaries needs no shareholder vote and can convert a cross-entity HR arrangement into one employer's internal policy, resolving a competition-law exposure as a side effect of a corporate step.
• • In a roll-up, watch for informal arrangements made directly between newly acquired operating managers before the entities are legally combined — they are agreements between separate employers until the corporate structure says otherwise.

Sources

• • Competition Act s.45 — marginal note Conspiracies, agreements or arrangements between competitors; s.45(4) is the ancillary restraints defence relied on here.
• • Canada Business Corporations Act s.184 — marginal note Vertical short-form amalgamation.
• • Treadstone Law — employee non-solicitation clauses in a purchase agreement — on drafting and enforceability of the covenant. Note it addresses the contractual clause only and does not deal with competition law or no-poach exposure; that part rests on s.45 above.