Non-competition clauses, otherwise known as a ‘Non-Compete Agreements’, are typically an agreement between an employee and employer that prevents the employee from working for, or starting, in a business that competes with the employer’s business.
In Ontario, Bill 27, known as the Working for Workers Act, 2021 received Royal Assent in December, 2021 and amended the Employment Standards Act, 2000 to prohibit most non-compete clauses, however, certain exceptions are still provided for.
Here are 6 things to know about non-competition clause legality in Ontario:
- Most Employee Noncompete Clauses Are Now Void: Employers generally cannot enter into a post-employment non-compete with employees in Ontario. If you agreed to the Non-Compete after commencing employment, and did not receive an incentive for doing so, your Non-Compete may be unenforceable.
- There Are Narrow Exceptions: Non-competes may still be permitted where they are part of a sale of a business (including a lease) and the seller becomes an employee of the purchaser immediately after the sale, or where the employee is an “executive” as defined by the ESA (e.g., CEO, President, CFO and certain other “chief” roles).
- Older Agreements Aren’t Automatically Void: Non-competes signed before October 25, 2021 aren’t automatically void, but they’re still frequently unenforceable, and any new non-compete signed on or after that date is generally void unless a narrow statutory exception applies.
- If A Non-Compete Is Permitted, It Must Still Be Reasonable: Where a non-compete is not void, courts still expect it to be reasonable, and courts often start from the assumption that they are unreasonable. A clause that lasts too long, covers too wide a geographic area, or restricts too many activities is more likely to be struck down. The language also needs to be clear.
- A Non-Solicitation Clause or Confidentiality Terms is Usually Enough to Protect the Former Employer: Employers can use restrictive covenants to protect legitimate business interests, usually client relationships, pricing, strategies, or confidential information. Often, a properly drafted non-solicitation clause or confidentiality clause can address those concerns without blocking someone from earning a living.
- You Have Options: Even where a clause isn’t void, enforcement often depends on the facts, including clarity, reasonableness, and whether an injunction is realistically available. If you’re being asked to sign a restrictive covenant, or you’re facing one after leaving a job, legal advice can help you understand whether it’s void, negotiable, or vulnerable to challenge.
Frequently Asked Questions About Non-Competition Clauses in Ontario
What Is A Non-Competition (Non-Compete) Clause?
A non-competition (non-compete) clause is a term in an employment contract that restricts an employee, often after they become former employees, from working in a competing business, joining rival businesses, or creating their own business in the same field for a certain period.
Are Non-Compete Clauses Legal In Ontario Right Now?
For most employees, non-competes are generally prohibited and typically cannot be used to block new employment or a new job. That said, the analysis can change for senior executives, and it can also look different in business-sale situations. Even when a clause is technically allowed, it still needs to be drafted in a way a court could enforce.
Who Is Affected By The Ban On Non-Compete Clauses Under The Working For Workers Act, 2021?
The ban primarily affects employees and job applicants being asked to sign a non-compete as part of a job offer or onboarding package with a current employer. True independent contractors are not typically covered in the same way, but misclassification issues are common, and the label in the paperwork is not always the final word.
Are There Any Exceptions When A Non-Compete Clause Can Still Be Valid?
Yes. Non-competes can still be valid in limited situations, most commonly for senior executives, and in certain business-sale contexts where the restriction is tied to the transaction. Outside those exceptions, employers can use non-solicitation agreements and confidentiality provisions to protect their business interests.
What Makes A Non-Compete Clause Enforceable Under Common Law?
If the clause is not caught by Ontario’s statutory prohibition, common law enforceability depends on whether the restriction is clear, reasonable, and no broader than necessary to protect legitimate interests, such as protecting trade secrets or truly sensitive relationships with customers. Courts are skeptical of clauses that are overly restrictive, vague, or designed mainly to limit competition rather than protect something concrete.
What Factors Do Courts Consider When Evaluating Enforceability (Time, Geography, Scope, Reasonableness)?
Courts look closely at duration, geographic scope, and the scope of restricted activities. A clause that blocks too many roles, too wide a territory, or too long a timeframe is more likely to fail. The key question is whether the restriction reasonably matches the risk the employer says it is addressing, without unnecessarily preventing someone from working.
What’s The Difference Between A Non-Compete Clause And A Non-Solicitation Or Non-Disclosure Clause?
A non-compete tries to stop you from working for a competitor at all. A non-solicitation clause focuses on whether you can approach or take the employer’s customers or staff (including other employees), and a non-disclosure clause focuses on keeping trade secrets and proprietary information confidential. In practice, well-drafted non-solicit and confidentiality terms are often more defensible than a broad non-compete.
If I Signed A Non-Compete Before October 25, 2021 — Is It Still Binding?
It may still be argued as binding, but it is not automatically enforceable. Pre-October 25, 2021 non-competes are typically assessed under common law, where many fail because they are too broad, unclear, or unreasonable in time, territory, or activities. Whether it can be enforced will turn on the specific wording and the real-world context.
If I Refuse To Sign A Non-Compete Now, Can My Employer Penalize Me?
If you are being asked to sign a non-compete that would be prohibited, you may have a basis to push back. Practically, employers sometimes apply pressure, so it helps to respond carefully and in writing.
For example, if a clause says you cannot work for “any competitor” anywhere in Ontario for 24 months, that’s often a red flag for being overly restrictive, especially if it would block you from working in the same field even in a different role for a different company.
If you are concerned about consequences, speaking with an employment lawyer can help you evaluate your risks, your leverage, and the safest way to protect your position before you sign anything.
Get Clarity On Your Employment Contract Language
It is normal to feel uncertain about the potential legal implications when an employment contract includes restrictions you do not fully understand.
Clauses dealing with competition, solicitation, confidentiality, bonus repayment, or termination can have real consequences when you try to move to a new job or exit a role that is no longer working.
Whitten & Lublin helps Ontario employees understand what their contract actually requires, whether a clause is likely to be enforceable, and what practical steps reduce risk before and after a job change.
If you are deciding whether to sign, considering a move, or dealing with a dispute tied to contract wording, contact us online or call 416-640-2667 to discuss your situation.
