Non-Competition Clauses — Ontario Employment Law

A non-competition clause, sometimes called a non-compete agreement, is a term in an employment contract that attempts to restrict an employee from working for a competitor or starting a competing business after their employment ends. For many years, these clauses were common in Ontario workplaces, but their enforceability has always been questionable. Courts in Ontario have traditionally viewed non-competes as a restraint of trade, running contrary to the public policy that individuals should be free to earn a livelihood in their chosen field.

This judicial skepticism was codified into law with a major change to Ontario's Employment Standards Act, 2000 (ESA). As of October 25, 2021, the ESA explicitly prohibits employers from entering into employment contracts that contain a non-competition clause. This ban applies to the vast majority of employees in the province, regardless of their role or industry. However, the legislation includes two key exceptions: the ban does not apply to certain high-level executives (often referred to as the 'C-suite'), nor does it apply in the context of the sale of a business where the seller becomes an employee of the purchaser. For agreements entered into before this date, or for roles that fall into an exception, the old common law rules still apply. Under those rules, a non-compete clause is presumed to be unenforceable unless the employer can prove it is 'reasonable' in its scope. This means the restriction must be narrowly tailored in terms of duration (how long), geographic area, and the specific activities it prohibits. It must also be necessary to protect a legitimate business interest, such as trade secrets, and not simply to prevent ordinary competition. Because the legal analysis of any restrictive covenant is highly dependent on its specific wording and the factual circumstances, understanding your rights by reviewing the contract with a professional is often a critical step.