How the ‘hero pay’ scandal prompted Ottawa to make wage-fixing illegal

Wage agreements and no-poach agreements will be criminalized in Canada from June 2023

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Nathaniel Erskine-Smith, a Liberal MP from Toronto, woke up on his birthday in 2020 and wrote an email on his phone.

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Two days earlier, on June 13, 2020, Canada’s three largest supermarket chains simultaneously canceled their $2 per hour bonuses for “hero pay” for frontline workers — the store clerks and warehouse workers who continued to show up to keep grocery stores running despite lockdowns, uncertainty and widespread absenteeism. in the first few months of the COVID-19 pandemic.

“It was just outrageous, I think, on a grassroots level,” Erskine-Smith said. “I was just angry.”

So he wrote the email at 8:59 am with the subject line: “I give notice of this motion today.”

That email appears to have set off a two-year chain reaction, culminating last week with a major change in how Canada protects workers from wage suppression.

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On June 15, 2020, Erskine-Smith’s motion asked the House of Commons Industry Committee to call on supermarket executives to explain why they have cut bonuses and “how those decisions are consistent with competition laws.”

Liberal MP Nathaniel Erskine-Smith.
Liberal MP Nathaniel Erskine-Smith. Photo by Adrian Wyld/The Canadian Press

Within weeks, top executives from each of the three chains – Loblaw Companies Ltd., Sobeys parent company Empire Co. Ltd. and Metro Inc. – before the committee, where they revealed that they had contact with each other before canceling the hero bonuses.

Loblaw’s then-president Sarah Davis said she sent a “courteous email” to give competitors advance notice of her decision. Metro CEO Eric La Flèche said he called executives from competing chains to find out when they planned to cut bonuses. Empire chief executive Michael Medline said he chose to have a legal adviser when speaking with La Flèche and declined to discuss his hero pay plans. Davis said she told La Flèche she hadn’t made a decision yet. All three companies emphasized that they made hero pay decisions independently of each other and denied any wrongdoing.

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“Business is thriving,” Erskine said at the hearing. “Profits are coming in in record numbers and, Mr La Flèche, you are proactively reaching out to your competitors to say, ‘When can we cut pandemic wages?’”

“With all due respect, I don’t agree with that again,” La Flèche said.

“I’ll leave the rest of those questions to the Competition Bureau,” Erskine-Smith said.

speaks at a meeting of the Standing Committee on Industry, Science and Technology on frontline grocery workers as seen on a laptop in Ottawa, July 10, 2020.
speaks at a meeting of the Standing Committee on Industry, Science and Technology on frontline grocery workers as seen on a laptop in Ottawa, July 10, 2020. Photo by David Kawai/Bloomberg

But the Competition Bureau – the agency that enforces competition law in Canada – did not investigate. In a letter to Erskine-Smith in 2020, Competition Commissioner Matthew Boswell explained that the Competition Act does not consider it a criminal offense for employers to collude to fix wages or agree not to hire each other’s staff – known as “no- poach agreements”. †

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That’s because, at least in the eyes of the law at the time, collusion between companies to lower the cost of inputs isn’t always a bad thing for consumers. For example, if independents pool their resources to make a deal on ingredients, their customers may benefit from lower selling prices.

The agency could still go after wage determination in civil cases, but first it had to prove that the conduct harmed competition. Proving that, Boswell argued, “is not a low threshold.” In response, in 2021, the House of Commons Industry Committee asked the government to put pay and no-poach agreements on the list of offences.

This month, the federal government complied. The Liberals put a series of amendments to the Competition Act into their budget bill before spring. And that bill received royal assent on June 23, including an amendment that criminalizes wage bargaining and non-poaching agreements. That change will come into effect in June 2023.

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Michael Kilby, a competition lawyer in Toronto, said the new rules will seriously change the way he advises employers on employment issues. Previously, he is alleged to have told clients that the agency can only pursue wage agreements in civil cases, and even then “there is no real track record of them doing this and there are no real sanctions involved.” Now, he said, employers convicted of wage settlements or no-poach agreements could face unlimited fines, jail time and class action lawsuits.

“This is not a baton or a slap on the wrist,” said Kilby, head of the competition and foreign investment group at Stikeman Elliott LLP. “In the worst case scenario, this is a huge liability.”

This is not a baton or a slap on the wrist. In the worst case this is a huge liability

Michael Kilby

Kilby said he expects the ban on wage and no-poach agreements will also apply to franchisees operating under the same brand. Those franchises can sometimes be subject to rules that prohibit them from stealing each other’s staff. For example, Tim Hortons used to include a no-poach clause in his standard franchise agreements. However, the coffee chain says it will no longer use the clause in 2018 and does not enforce it in older agreements.

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The Canadian Chamber of Commerce lobbied against the criminalization of no-poach agreements, arguing that franchisees can spend more on employee training if they don’t have to worry about losing those employees to fellow restaurant owners.

“Ultimately, they are a company. So they have to decide, what are they investing their dollars in?” said Mark Agnew, the chamber’s senior vice president of policy and government relations. “If there’s a risk that the people they hire could be snatched away, that’s a disincentive for them to say I’m going to invest this in training my employees.”

But Vass Bednar, an outspoken advocate for competition reform in Canada, said the franchise model shouldn’t mean “you can have your cake and eat it too.”

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“You can pretend you’re an independent entrepreneur, you can get into this model and we’re going to make sure we collude to suppress the wages of your employees?” said Bednar, an adjunct professor of political science at McMaster University. “Sorry, but maybe that’s just a rough deal and maybe you have to compete to attract and retain talent.”

Erskine-Smith said he hadn’t anticipated this debate two years ago. When he wrote that email on his birthday, he didn’t think the hearing with the supermarket managers would be some kind of turning point. He said he was surprised to hear about “communication between CEOs” at competing companies.

“It wasn’t just me. You could see the reaction of colleagues representing all parties at the committee hearings who were frustrated and shocked,” Erskine-Smith said. “And so I think that eventually led to a much more serious conversation about pay agreements.”

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