In Latifi v The TDL Group Corp. (Latifi), the British Columbia Supreme Court struck portions of a proposed class action claim alleging that a no-hire clause in the standard Tim Hortons franchise agreements violates section 45 of the Competition Act by unlawfully suppressing wages.
This decision is based on the fact that agreements between or among employers regarding employees are treated as buy-side agreements. In buy-side agreements (such as the no-hire clause at issue), purchasers of a product (in this case employers) agree to fix the price of products they purchase. Latifi also conforms with the Competition Bureau’s November 2020 statement clarifying that, unlike in the United States, buy-side agreements are not caught by the criminal provisions of the Competition Act as a result of 2009 amendments that removed the word “purchase” from the definition of “agreements” under section 45.
Latifi comes after the Federal Court’s recent decisions in Mohr (striking an action) and Jensen (declining certification).
Background
In 2019, the plaintiff, representing employees of Tim Hortons franchises, commenced a proposed class action alleging the no-hire clause in Tim Hortons’ standard franchise agreements prevented franchisees from inducing employees to leave their employment at other Tim Hortons locations without consent. The plaintiff alleged the no-hire clause breached section 45 by unlawfully suppressing wages, benefitting Tim Hortons’ bottom line. The plaintiff also alleged Tim Hortons committed civil conspiracy and/or the tort of unlawful means in enforcing the no-hire clause. Tim Hortons brought an application to strike the claim. The application was heard in May 2021.
The decision
In a reasoned decision, Justice Sharma struck the Competition Act portions of the claim, holding it was plain and obvious that the plaintiff’s claim that the no-hire clause violates section 45 is bound to fail. Consistent with the Competition Bureau’s guidance, the court found that section 45 of the Competition Act does not apply to the clause because it does not restrict output “for the supply of a product.” In reaching its decision, the court held that:
- Reading the words of section 45 in their “grammatical and ordinary sense,” Justice Sharma found that section 45 is intended to prohibit agreements amongst competitors “with respect to a product.” On this basis, the court stated that it was “nonsensical” to interpret section 45 in a way that assumes that the persons captured could be simultaneously a competitor and a customer of a product, as the plaintiff alleged.
- Based on the legislative history of section 45 addressed in Mohr, Justice Sharma confirmed that since “purchase” was removed from the definition of “agreements” in 2009, section 45 does not apply to buy-side agreements.
Key takeaways
Latifi is the latest in a consistent series of developments on the treatment of buy-side agreements, including no-poaching, no-hire and wage-fixing agreements, all of which confirm that buy-side agreements are not caught under the criminal provisions of Canadian competition law. Importantly, this represents a significant difference between Canadian and US law in this area and companies with cross-border operations where employee poaching is an issue (in particular within a franchise or dealership system) may want to consider taking a different approach in Canada than they take in the US or other jurisdictions.
The authors wish to thank articling student Katarina Wasielewski for her help in preparing this legal update.
