Two promises a buyer and a seller routinely exchange — not to hire each other’s people, and what staff will be paid — are the conduct that subsection 45(1.1) of the Competition Act turned into an indictable offence. The defence in subsection 45(4) is what keeps ordinary deal covenants out of it, and it imposes three conditions that a clause either meets or does not.
Key takeaways
SECTION 01 OF 08
The employment limb is subsection (1.1), marginal note Conspiracies, agreements or arrangements regarding employment: “Every person who is an employer commits an offence who, with another employer who is not affiliated with that person, conspires, agrees or arranges” either “to fix, maintain, decrease or control salaries, wages or terms and conditions of employment” or “to not solicit or hire each other’s employees.”
It does not require that the two employers compete, or that wages actually moved. Subsection (2) sets the consequence: “imprisonment for a term not exceeding 14 years or to a fine in the discretion of the court, or to both”. For the rest of the section, see section 45 read as a whole.
SECTION 02 OF 08
The words were inserted by section 257 of the Budget Implementation Act, 2022, No. 1, which opens “Subsections 45(2) and (3) of the Act are replaced by the following”. That Act was assented to on 23 June 2022, and its section 275, marginal note First anniversary, reads: “Section 257 comes into force on the first anniversary of the day on which this Act receives royal assent.” Assent plus a year is 23 June 2023, derived from two provisions of one statute.
The Competition Bureau gives the same date and extends its reach backwards: the subsection “applies to agreements made between employers on or after June 23, 2023. It also applies to conduct that reaffirms or implements agreements that were made before that date.” A no-hire signed into a 2021 confidentiality agreement and revived by an amending letter is, on that reading, reaffirmed. Section 45 never uses the word reaffirm: that is the Bureau’s position, not the statute’s.
SECTION 03 OF 08
Employee restraints appear at four points in a sale and they are not one clause: a mutual no-hire in the confidentiality agreement, signed before either side has agreed to buy or sell anything; a no-poach in the letter of intent; a non-solicitation covenant in the purchase agreement binding the seller and its principals; and a post-closing covenant in a transition services agreement.
The first two sit in a blind spot. Treadstone Law’s map of binding versus non-binding LOI clauses puts confidentiality and exclusivity among the terms that bite on signature and never reaches employee non-solicitation; its article on the employee non-solicitation clause covers the covenant restricting the seller. Neither mentions the Competition Act, and neither is wrong for that: enforceability and criminal liability are separate tests a clause must both survive. See also managing confidentiality during a live process.
SECTION 04 OF 08
No conviction follows where the accused “establishes, on a balance of probabilities”, that “it is ancillary to a broader or separate agreement or arrangement that includes the same parties” and “is directly related to, and reasonably necessary for giving effect to, the objective of that broader or separate agreement”, provided that broader agreement “considered alone, does not contravene that subsection”. It is a defence, not an exclusion: the burden sits on the accused.
The first element is where a deal covenant most often fails. In the Competitor Collaboration Guidelines the Bureau says: “Nor is it adequate to demonstrate that the ancillary restraint was entered into between the parties in the same context and at the same time as the broader agreement.” Instead, “the parties must demonstrate that the restraint was directed at the promotion or facilitation of an objective of the broader agreement”.
Identity of parties is the other trap: the defence does not require them to be “identical. However, the broader or separate agreement must include all of the parties to the agreement containing the ancillary restraint.” Where the purchase agreement is signed by an acquisition subsidiary and the no-hire given by its parent, that is a drafting question with a criminal provision behind it.
SECTION 05 OF 08
The Bureau will not second-guess a restraint that was less restrictive only in some insignificant way, but draws the line at practical alternatives: “if the parties could have achieved an equivalent or comparable arrangement through practical, significantly less restrictive means… then the Bureau will conclude that the restraint was not reasonably necessary”.
Three variables carry it: “the duration of the ancillary restraint, the subject matter of the restraint and its geographic scope (e.g., whether it applies to employees unrelated to the collaboration)”. Read the parenthesis: a no-hire covering every employee of both groups, in a deal concerning one division, is the case it describes. The Bureau also examines “evidence created during the evaluation and negotiation of the agreement”, so a note saying why the covenant names four engineers and expires twelve months after closing is worth more than its wording.
SECTION 06 OF 08
The stated approach is favourable and narrow at once. The Bureau “will generally not assess wage-fixing or no-poaching clauses that are ancillary to merger transactions, joint ventures or strategic alliances” under the criminal provisions, but may investigate “where those clauses are clearly broader than necessary in terms of duration or affected employees, or where the business agreement or arrangement is a sham”. The restraints it says it will generally not assess criminally already include a sale-of-business non-compete and the ordinary-course interim covenant — Treadstone Law covers the latter from the contract side under ordinary decisions between LOI and closing.
None of that is the law, and the guidance says so first: “These Guidelines do not restate the law. They are not a binding statement of how the Commissioner of Competition or the Director of Public Prosecutions (the DPP) would exercise their discretion” in a given case. It also says “merger transactions” without defining the phrase; the Act defines merger only for sections 92 to 100, where section 91 makes it the acquisition “of control over or significant interest in the whole or a part of a business”, with no size threshold. Whether the Bureau means its phrase to carry that meaning is not stated, and I have not assumed it. See also when a sale becomes a notifiable transaction.
SECTION 07 OF 08
Paragraph 45(1.1)(b) is reciprocal on its face — “to not solicit or hire each other’s employees” — and the Bureau reads those two words strictly. “When a restraint contained in an agreement only applies to one employer” it treats the restraint as one-way, concluding of its worked example: “As a result, it does not violate paragraph 45(1.1)(b).” The workaround is closed: where restraints “are not in force at the same time or the agreements apply to unrelated employees… the Bureau will prioritize its enforcement on those agreements that appear to be designed to evade” the paragraph. Paragraph (a) carries no reciprocity wording; the one-way analysis is directed at (b), and I found no decided case on whether it reads across.
Affiliation is the other boundary, and structure decides when it arrives. Under subsection 2(2) entities are affiliated where “one of them is the subsidiary of the other” or both are controlled by the same person, control turning on securities carrying “more than 50% of the votes that may be cast to elect directors of the corporation”. A share buyer acquires those votes, so the target is its subsidiary from closing. An asset buyer never acquires the seller corporation, so a mutual no-hire with a selling company that keeps trading stays an arrangement between unaffiliated parties for its whole life. Whether such a company is still an employer is not answered by the text, and I found no guidance or case on it.
SECTION 08 OF 08
A buyer setting the terms on which it will employ the seller’s staff is one employer fixing its own compensation, not an agreement between employers. Treadstone Law on payroll transition at closing notes that in an asset deal the buyer has no automatic obligation to hire anyone, so whether staff continue and on what terms is for the purchase agreement. Retention money is the same shape: retention agreements, retention bonuses and retention as a closing condition are bargains with an individual employee, funded by either side, and nobody can be compelled to sign.
Covenants taken from the people who stay are a different regime again: Treadstone Law on restrictive covenants for retained key employees sets out the Ontario position, and its notes on post-closing covenants and business-to-business non-solicitation treat duration as needing to be proportionate to the interest protected. Those pages answer whether a court will enforce a covenant, not whether the agreement to give it was lawful — see also what happens to the staff when the business is sold and allocating price to a non-compete. Where a clause matters enough, section 124.1 lets anyone ask the Commissioner for an opinion on proposed conduct, and on accurate and complete facts “a written opinion provided under this section is binding on the Commissioner”.
Exposure is not confined to the principals: Criminal Code section 21(1) makes a party anyone who “does or omits to do anything for the purpose of aiding any person to commit it”, section 22 catches counselling — “counsel includes procure, solicit or incite” — and section 22.2 reaches an organization through a senior officer. Two boundaries close this. The Competition Act is federal and applies identically across Canada, while enforceability under provincial employment legislation is a separate test a clause must also pass. And this page states what the provisions say and what the defence requires; it does not say which side of the line any clause falls on — “The courts are responsible for the final interpretation of the law.”
Not automatically. Subsection 45(1.1) makes wage-fixing and no-hire agreements between unaffiliated employers an indictable offence, but the ancillary restraints defence in subsection 45(4) can protect a restraint that is genuinely tied to a broader agreement between the same parties, such as the purchase agreement itself.
Since 23 June 2023 — one year after the Budget Implementation Act, 2022, No. 1 that added it received Royal Assent on 23 June 2022. The Competition Bureau also applies it to conduct that reaffirms or implements agreements made before that date.
Yes. A confidentiality agreement or letter of intent signed before either side has agreed to buy or sell anything sits in a blind spot: a no-hire promise exchanged before any broader agreement exists has nothing to be ancillary to, so the subsection 45(4) defence is harder to establish there.
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