Ancillary restraints defence (Competition Act s. 45)

Buyers and sellers meet this when drafting non-compete or no-poach terms tied to a sale. Section 45(1) makes it an offence to conspire, agree or arrange with a competitor to fix, maintain, increase or control prices, to allocate sales, territories, customers or markets, or to fix, maintain, control, prevent, lessen or eliminate production or supply. Section 45(1.1) covers an employer that agrees with an unaffiliated employer to fix wages or terms of employment, or not to solicit or hire each other’s employees.

The defence

Under s. 45(4), the person must establish, on a balance of probabilities, that the arrangement is ancillary to a broader or separate agreement that includes the same parties and is directly related to, and reasonably necessary for giving effect to, that agreement’s objective. The broader agreement, considered alone, must not contravene the subsection. Other defences and exceptions are in s. 45(5) to (7).

What to ask

• What is the broader agreement, and do the same parties sign it?
• Is each restriction directly related to the purpose of the sale and reasonably necessary to give it effect?
• The Competition Bureau’s guidelines say ancillary restraints are more appropriately reviewed under the Act’s reviewable-matters provisions, including s. 90.1, and give a non-compete clause in an agreement for the sale of assets or shares as an example.

This is a federal rule. For how enforceability is tested more broadly, see whether non-competes are enforceable in Canada and the non-compete entry.