Restrictive Covenants — Ontario Employment Law
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About Restrictive Covenants
Restrictive covenants are clauses in an employment contract designed to restrict an employee's activities after their employment ends. Employers use them to protect legitimate business interests, such as confidential information, client relationships, and trade secrets. In Ontario, the three most common types are non-competition, non-solicitation, and confidentiality clauses. However, from a legal standpoint, these clauses are not automatically enforceable. The courts start with the presumption that any clause restricting a person's ability to earn a living is a restraint of trade and is therefore void.
The burden falls on the employer to prove the covenant is 'reasonable' and necessary. To be considered reasonable, the clause must be carefully limited in its temporal duration (how long it lasts), geographic scope (the area it covers), and the scope of activities it prohibits. A clause that is overly broad or ambiguous will almost certainly be struck down by a court. For instance, a Canada-wide, five-year ban on working in an entire industry would be unenforceable. Courts will not rewrite an unreasonable clause to make it reasonable; they will simply invalidate it.
A significant development in Ontario law is the amendment to the Employment Standards Act, 2000 (ESA), which now explicitly prohibits employers from entering into non-competition agreements with most employees. There are very narrow exceptions, primarily for certain high-level executives and in the context of the sale of a business. This ban does not apply to non-solicitation clauses, which prevent an ex-employee from poaching clients or employees, but these still must meet the common law test of reasonableness. Given the complexity and the shifting legal landscape, understanding how a restrictive covenant in your contract might be interpreted requires a careful analysis of your specific circumstances and the precise wording of the agreement.
Frequently Asked Questions
Is the non-compete clause in my Ontario employment contract legal?
For most employees in Ontario, non-competition clauses entered into on or after October 25, 2021, are banned and unenforceable under the Employment Standards Act, 2000. The main exceptions are for certain 'executive' employees or in connection with the sale of a business.
What is the difference between a non-solicitation and a non-competition clause?
A non-competition clause prevents you from working for a competitor or starting a competing business. A non-solicitation clause is narrower; it only restricts you from actively pursuing your former employer's clients or employees for a specific period.
How long can a non-solicitation clause be enforced in Ontario?
There is no set maximum, but courts generally find periods of 6 to 12 months to be more reasonable. A duration longer than one year becomes increasingly difficult for an employer to justify and is more likely to be found unenforceable.
I was terminated without cause. Do I still have to follow the restrictive covenants in my contract?
Generally, yes. However, if your employer committed a fundamental breach of the contract, such as a wrongful dismissal (e.g., by not providing proper notice or pay in lieu), a court may rule that the employer cannot then rely on the restrictive covenants in that same contract.
What happens if my former employer thinks I've breached my restrictive covenant?
Your former employer could send you a warning letter or, in more serious cases, file a lawsuit seeking damages or an injunction. An injunction is a court order that would force you to stop the alleged prohibited activity immediately.
When should I get a lawyer to look at a restrictive covenant?
It is highly advisable to have an employment lawyer review any employment contract containing restrictive covenants before you sign it. You should also seek legal advice immediately if you are leaving your job and are unsure of your obligations, or if your former employer has accused you of a breach.
My contract says I can't use 'confidential information'. Is this a type of restrictive covenant?
Yes, a confidentiality clause is a form of restrictive covenant. Unlike non-competes, these are more readily enforced by courts, as employers have a clear right to protect their proprietary information. Your duty of confidentiality regarding your employer's sensitive information can also exist even without a written clause.
Common Scenarios
- A dental hygienist leaves a clinic and her employment contract contains a clause preventing her from working within a 5km radius for one year and from soliciting any of the clinic's patients.
- A senior software developer resigns from a tech startup and is reminded by HR of a broad non-competition clause that purports to ban him from working for any software company in North America for two years.
- After being terminated, an investment advisor is offered a severance package that requires her to sign a new, more restrictive non-solicitation agreement than the one in her original contract.
- A sales director for a manufacturing company quits to join a direct competitor, and her former employer immediately sues to enforce a 12-month non-solicitation clause to prevent her from contacting her old client list.
What You Should Know
- Before signing any job offer, carefully read the entire contract and identify any clauses that restrict your future employment. These are often titled 'Restrictive Covenants', 'Non-Competition', or 'Non-Solicitation'.
- If you are leaving a job with a restrictive covenant, avoid proactively contacting former clients or colleagues to solicit business. General networking or public advertising is typically viewed differently than direct solicitation.
- Keep copies of your employment contract and any correspondence from your former employer regarding your post-employment obligations. Documentation is crucial if a dispute arises.
- Be aware that even if a non-competition clause is void under the ESA, a non-solicitation or confidentiality clause in the same contract may still be enforceable if it is deemed reasonable.
- If you receive a lawyer's letter accusing you of breaching a restrictive covenant, do not ignore it. Contact an employment lawyer promptly to understand your legal position and options.
Featured Cases
Ballance It Inc. v. L.
2026 ONSC 5148 (CanLII) · 2026-09-10Employment Contract: Interlocutory Injunction Refused
This interlocutory proceeding addressed whether the employer established a strong prima facie case to restrain a former employee from breaching non-solicitation and confidentiality obligations under their employment agreement. The court assessed the reasonableness of restrictive covenants and the handling of confidential information on personal devices, ultimately refusing the injunction as the prima facie case was not met.
Bellwether Investment Management Inc. v. Harbourfront Wealth Management Inc.
2026 ONSC 3622 (CanLII) · 2026-05-19Enforceability of Non-Compete & Non-Solicit Clauses
This interlocutory proceeding addresses the enforceability of non-solicitation and non-competition clauses in an employment agreement. The court found a strong prima facie case that the defendant breached these restrictive covenants by soliciting clients and employees, leading to the issuance of an injunction. Additionally, a show cause hearing was ordered regarding alleged contempt of court for violating the interim injunction.
Riva Plumbing Limited v. F.
2026 ONCA 297 (CanLII) · 2026-04-24Riva Plumbing Limited v. F. - Unpaid Bonus, Non-Compete
This is an appeal to the Court of Appeal from a trial judge's decision dismissing the appellants' claims and allowing a counterclaim. The employer sued former employees for economic torts, breach of fiduciary duties, and breach of a settlement agreement containing non-competition clauses. One former employee counterclaimed for an unpaid bonus. The trial judge dismissed the employer's claims due to lack of evidence and allowed the counterclaim, finding the bonus was non-discretionary and did not require ongoing employment. The Court of Appeal dismissed the appeal, finding no errors in the trial judge's factual and credibility findings.
Cowan Insurance Group Ltd, v. B.
2026 ONSC 1413 (CanLII) · 2026-03-09Non-Compete Injunction Dismissed: ESA s. 67.2 Analysis
This interlocutory motion sought an injunction to prohibit a former employee from soliciting the plaintiff's clients, alleging breaches of restrictive covenants. The court dismissed the motion, finding that existing contractual and court-ordered restrictions were sufficient to protect confidential information, that the balance of convenience favored the defendant, and that the requested restraint was inconsistent with the prohibition on non-compete agreements under the Employment Standards Act, 2000.
ITCAD Tech Inc. v. P. et. al.
2026 ONSC 368 (CanLII) · 2026-01-23Employment: Punitive Damages & Non-Compete Enforceability
This is an appeal and cross-appeal decision from the Divisional Court concerning an employment dispute involving the withholding of earned compensation and the enforceability of a restrictive covenant. The court addressed whether the employer's conduct met the threshold for punitive damages under Whiten and found the 12-month non-competition covenant unenforceable as it was used to circumvent the loss of vendor status. The appeal and cross-appeal regarding punitive damages were dismissed.
Green Life Inc. et al. v. 24K Maple Supply Inc. et al.
2025 ONSC 7356 (CanLII) · 2025-12-05Injunction Refused: Expired Non-Compete & Confidentiality
This interlocutory motion concerned an application for an injunction to enforce confidentiality obligations and restrict competition, where the underlying non-competition clauses had expired. The court applied the RJR-MacDonald test, finding no serious question to be tried regarding the confidentiality of pricing and stock information which was largely public, and determined that damages were an adequate remedy. The motion was dismissed as the balance of convenience favoured the respondents and the relief sought would effectively shut down the competing business.
Arc Compute v. A.A., M.B. et al.
2025 ONSC 1745 (CanLII) · 2025-03-20Interlocutory Injunction: Fiduciary Duties & Non-Solicitation
An interlocutory proceeding involving departing employees accused of breaching fiduciary duties and employment contracts by misusing confidential information and soliciting clients. The court is determining whether to grant an injunction based on the test for serious issue to be tried, irreparable harm, and balance of convenience, while assessing the enforceability of non-solicitation clauses and confidentiality obligations.
Tar Heel Investments Inc. v. H.L. Staebler Company Limited et al
2025 ONSC 237 (CanLII) · 2025-01-10Constructive Dismissal: Leave to Amend Pleadings
This is an interlocutory motion regarding the Defendants' request for leave to amend their Statement of Defence to include allegations of constructive dismissal and an oral agreement. The court addressed whether the delay in seeking amendments caused non-compensable prejudice to the Plaintiff and whether the proposed employment law allegations were tenable at law. Leave to amend was granted as the Plaintiff failed to prove actual prejudice and the amendments were consistent with existing facts.
Tar Heel Investments Inc. v. H.L. Staebler Company Limited et al
2025 ONSC 240 (CanLII) · 2025-01-10Constructive Dismissal: Unilateral Changes to Salary
This case involves a dispute regarding whether the defendant Arseneau was constructively dismissed due to substantial changes to essential terms of employment, including a guaranteed salary. The court found that constructive dismissal was established. The case also addressed related issues regarding the ownership of a book of business, fiduciary duties, and restrictive covenants, ultimately finding no breach of fiduciary duty or restrictive covenant by the defendants.
2551965 Ontario Ltd. v. W.
2024 ONSC 4876 (CanLII) · 2024-09-04Wrongful Dismissal: Just Cause vs. 3 Months Notice
This wrongful dismissal case involved an employee who made verbal threats and breached the duty of loyalty, leading the employer to terminate employment for just cause. The court applied the framework from Dowling v. Ontario to assess the misconduct and found it constituted willful misconduct under the Employment Standards Act, 2000. While the dismissal was upheld for just cause, the court noted that if the dismissal had been without cause, three months' notice would have been reasonable. Additionally, restrictive covenants in the employment contract were found unenforceable due to overbreadth.
LivingArt Kitchens Inc. v. M.
2024 ONSC 3088 (CanLII) · 2024-05-30Interlocutory Injunction: Fiduciary Duties & Restrictive Covenants
This interlocutory motion concerned an application for an injunction against former employees accused of misappropriating confidential information and breaching fiduciary duties. The court applied the RJR-MacDonald test and found no strong prima facie case of a fiduciary relationship or breach, noting that the restrictive covenants were contestable and likely unenforceable under the Employment Standards Act, 2000. Consequently, the balance of convenience favored the defendants, and the plaintiff failed to demonstrate irreparable harm.
1000264228 Ontario Incorporated, et al v. K.
2024 ONSC 4518 (CanLII) · 2024-01-08Enforcement of Non-Competition Covenants
This case involves a dispute over non-competition and non-solicitation covenants, likely arising from an employment or executive relationship. The plaintiff sought an injunction to enforce these restrictive covenants against the defendant, alleging breach of contract.
Home Coffee Solutions Ltd. v. A.
2023 ONSC 6772 (CanLII) · 2023-12-01Non-Competition Injunction: Balance of Convenience
An interlocutory application for an injunction concerning a non-competition agreement.
EF Institute for Cultural Exchange Limited v. WorldStrides Canada, Inc.
2023 ONCA 566 (CanLII) · 2023-08-29Employment Contract: Restrictive Covenants Appeal
This is an appeal from a summary judgment ruling concerning alleged breaches of restrictive covenants and confidentiality clauses by a former employee. The Court of Appeal for Ontario reviewed whether the motion judge erred in finding no breach of the employment agreement and in requiring proof of damages for alleged assistance provided to a competitor. The appeal addressed the onus of proof and the appropriateness of summary judgment in the context of employment contract enforcement.
G. v PearTree Securities Inc.
2023 ONSC 3197 (CanLII) · 2023-05-29Wrongful Dismissal: Contract Enforceability & Punitive Damages
This wrongful dismissal case addressed the enforceability of two employment contracts, finding both valid with the second supported by fresh consideration. The court ruled that the employer breached the contract by suspending salary payments and imposing unauthorized conditions, awarding salary continuance and variable compensation. Additionally, non-competition clauses were found unenforceable as overly broad, and the employer was ordered to pay $10,000 in punitive damages for high-handed conduct.
Salina Chagpar Professional Corporation v J.
2023 ONSC 3153 (CanLII) · 2023-05-26Enforceability of Non-Solicitation Clauses in Employment
This is an interlocutory motion for injunctive relief regarding the enforceability of non-solicitation and confidentiality clauses in an employment contract. The plaintiff sought to prevent a former employee from soliciting clients and disclosing confidential information pending trial. The court granted the injunction, upholding the restrictive covenants as enforceable and finding that the plaintiff demonstrated irreparable harm.
Aware Ads Inc. v. W.
2022 ONSC 5543 (CanLII) · 2022-09-29Injunction Denied: Expired Non-Compete Clauses
This interlocutory proceeding involved an employer seeking an injunction to prevent a former employee from working for a competitor based on expired non-competition and non-solicitation clauses. The court applied the RJR-MacDonald test and found the restrictive covenants overbroad and unenforceable, while also excluding key evidence due to lack of authentication. The employer failed to establish a strong prima facie case of breach of fiduciary duty or irreparable harm, leading to the denial of the injunction.
Revel Realty Inc. v. C. et al
2022 ONSC 3372 (CanLII) · 2022-06-28Revel Realty v. C.: Non-Competition Clause
This is a contractual dispute concerning the enforceability of a non-competition clause. The case falls under the intersection of contract law and employment law, specifically addressing restrictive covenants.
M & P Drug Mart Inc. v. N.
2022 ONCA 398 (CanLII) · 2022-05-17Non-Competition Covenant Unenforceable: Ambiguity & Overbreadth
The Court of Appeal for Ontario heard an appeal regarding the enforceability of a non-competition covenant in an employment agreement. The court applied the Shafron framework and found the covenant unreasonable and unenforceable due to ambiguity and overbreadth, as it extended beyond the employee's role as a pharmacist. The appeal was not dismissed as moot despite the covenant's expiration.
K. v. P.
2022 ONSC 2717 (CanLII) · 2022-05-05This is a motion for summary judgment regarding the enforceability of a non-competition agreement. The court addressed issues of timeliness in bringing the application.