The Big Change: Ontario Bans Non-Compete Agreements
On October 25, 2021, Ontario passed the Working for Workers Act, 2021, which, among other things, introduced a ban on non-competition agreements for most employees. This was a landmark change in Ontario employment law and one of the first of its kind in Canada.
A non-competition clause (or "non-compete") is a provision in an employment contract or separate agreement that prevents an employee from working for a competitor or starting a competing business for a specified period after their employment ends. Before the ban, these clauses were used by many employers in Ontario, often as a way to restrict workers' career mobility.
What the Law Says
The ESA now includes Section 67.2, which provides that no employer shall enter into an employment contract or other agreement with an employee that includes a non-compete agreement. Any such agreement is void -- meaning it has no legal effect and cannot be enforced.
The ban applies to all non-compete agreements entered into on or after October 25, 2021. It also applies retroactively in some sense: even if you signed a non-compete before October 25, 2021, the enforceability of that clause was already questionable under common law, and the new legislation adds an additional layer of protection.
The Exception: C-Suite Executives
There is one important exception to the ban. Non-compete agreements may still be enforceable for employees who hold the position of a chief executive officer, president, chief administrative officer, chief operating officer, chief financial officer, chief information officer, chief legal officer, chief human resources officer, or chief corporate development officer, or who hold any other chief executive position.
If you are not a C-suite executive, your non-compete clause is almost certainly unenforceable.
The Business Sale Exception
Another exception applies in the context of a sale of a business. If you sell your business and become an employee of the buyer, a non-compete agreement that is part of the sale transaction may still be enforceable. This exception recognizes that non-competes are a standard feature of business sale agreements and serve a legitimate purpose in that context.
What About Non-Competes Signed Before October 25, 2021?
The Working for Workers Act does not explicitly invalidate non-compete clauses that were signed before October 25, 2021. However, even before the ban, Ontario courts were very skeptical of non-compete clauses and frequently refused to enforce them.
Under the common law, a non-compete clause is only enforceable if it is:
- Reasonable in scope: The restrictions on what you cannot do must be narrow and clearly defined.
- Reasonable in duration: The time period must be no longer than necessary to protect the employer's legitimate interests (typically 6-12 months at most).
- Reasonable in geographic area: The geographic restriction must be limited to the area where the employer actually operates or competes.
- Necessary to protect a legitimate business interest: The employer must show that the non-compete is needed to protect proprietary information, trade secrets, or customer relationships.
Courts consistently held that if a non-solicitation clause (a less restrictive alternative) could adequately protect the employer's interests, a non-compete clause would not be enforced. The practical effect was that non-compete clauses were already very difficult to enforce in Ontario even before the 2021 ban.
Non-Solicitation Clauses: Still Enforceable
It is crucial to understand that the ban on non-compete agreements does not apply to non-solicitation clauses. These are different restrictions that remain legal and enforceable in Ontario.
A non-solicitation clause does not prevent you from working for a competitor. Instead, it prevents you from actively soliciting (reaching out to) your former employer's clients, customers, or employees after you leave. The distinction is:
- Non-compete: "You cannot work for any competitor for 2 years." (Banned for most employees)
- Non-solicitation: "You cannot solicit clients you worked with for 12 months after leaving." (Still enforceable if reasonable)
For a non-solicitation clause to be enforceable, it must still be reasonable in scope, duration, and geographic area. Courts will not enforce overly broad non-solicitation clauses. For example, a clause that prevents you from soliciting any client of a large corporation -- including clients you never worked with -- would likely be struck down as unreasonable.
Confidentiality and Intellectual Property Clauses
The ban also does not affect confidentiality agreements or intellectual property clauses. Your employer can still require you to:
- Keep confidential information secret after you leave
- Not use proprietary information for the benefit of a competitor
- Assign intellectual property created during your employment to the employer
These are standard provisions that are generally enforceable, provided they are reasonable.
What This Means for You as a Worker
The ban on non-compete agreements is great news for workers in Ontario. It means:
- Greater career mobility: You are free to pursue opportunities with competitors or start your own business after leaving your job (subject to non-solicitation and confidentiality obligations).
- More bargaining power: You do not need to accept a non-compete as a condition of employment.
- Peace of mind: If your current employment contract contains a non-compete clause signed after October 25, 2021, it is void and unenforceable.
What to Do If Your Employer Tries to Enforce a Non-Compete
If your employer threatens to enforce a non-compete clause against you:
- Do not panic. The clause is very likely unenforceable.
- Review when the clause was signed and whether you fall into any exception category.
- Consult an employment lawyer who can assess the specific language of the clause and advise you on your rights.
- Do not let the threat prevent you from pursuing legitimate career opportunities.
Special Considerations for Newcomers
Many newcomers to Canada sign employment contracts without fully understanding the implications of restrictive covenants. If you are starting a new job, keep these tips in mind:
- Read your employment contract carefully, especially any sections about what happens after your employment ends.
- If the contract includes a non-compete clause, know that it is likely unenforceable (unless you are a C-suite executive).
- Pay attention to non-solicitation and confidentiality clauses, which ARE enforceable.
- If you do not understand a clause, ask questions or consult a lawyer before signing.
- Do not assume that because you are new to Canada, you have to accept whatever terms are offered.
At Imigrando, we help newcomers review and understand their employment contracts. Knowledge of your rights is the best protection you can have in the workplace.