Non-Competition Clause — Ontario Employment Law

A non-competition clause is a specific provision within a legal agreement designed to prevent an individual from working for a competitor or starting a competing business for a set period after their departure. In Ontario employment law, these clauses have undergone massive changes and represent one of the most heavily scrutinized areas of a contract.

Historically, courts viewed non-competition clauses as a restraint of trade, meaning they were generally presumed unenforceable unless an employer could prove the restriction was absolutely necessary to protect its legitimate business interests. A valid clause had to be strictly reasonable regarding its duration, geographic scope, and the specific activities prohibited. If an employer drafted the clause too broadly—for example, banning a sales representative from working anywhere in Canada for five years—an Ontario judge would strike the entire clause down. Under the common law, courts will not "blue-pencil" or rewrite an offensive clause to make it fair; if it is overbroad, it is void.

The legal landscape shifted dramatically with the implementation of the Working for Workers Act, 2021, which amended the Employment Standards Act, 2000 (ESA). The amendment expressly bans employers from including non-competition clauses in employment contracts or other agreements with employees, provided the agreement was entered into on or after October 25, 2021. Any non-competition clause drafted after this date for a standard employee is void.

However, there are two major exceptions to this statutory ban. First, the ban does not apply in the context of the sale of a business or part of a business, where the seller becomes an employee of the buyer and agrees not to compete against the newly acquired goodwill. Second, non-competition clauses can still be legally inserted into the contracts of "executives," such as presidents, chief executive officers, or other chief operational or legal officers.

For clauses that predate the ban, or those applying to executives and business owners, enforceability still hinges on the rigorous common law test for reasonableness. Furthermore, independent contractors or complex professional relationships—like dental associates—may encounter non-competition clauses where the distinction between employment and business-to-business arrangements heavily dictates how a court assesses the restriction. Because restrictions on your ability to earn a livelihood are legally complex and highly dependent on exactly how your contract was worded, having a specialized employment lawyer scrutinize the terms is the safest way to determine where you stand.