Are non-compete clauses legal in for provincially regulated and federally regulated employees in Ontario? If you’re reviewing an employment contract, you might come across terms that try to limit your future job opportunities. These are called restrictive covenants, and they can have major implications for your career and income. In this article, we explain what restrictive covenants and non-compete clauses mean, the recent changes to provincially and federally regulated employees in Ontario, and what employees should look for before signing.
Often when reviewing an employment contract, employers may include terms that attempt to restrict or prevent an employee from doing something. These are referred to as “restrictive covenants”. Non-competition clauses fall under this umbrella and aim to restrict an employee from working for a competitor or starting a competing business during or after the employment relationship.
In Ontario, as of October 25, 2021, most non-compete clauses signed after that date are automatically deemed to be unenforceable under Ontario’s Employment Standards Act (ESA). This is because the legislatures and courts agree that an employee should not be limited in their attempts to earn an income. This can be very important, especially in specialized fields where employment options are scarce.
Exceptions to Ontario’s non-compete restriction include:
- Executives or senior officers – i.e. Chief Financial Officer, Chief Marketing Officer, Chief Executive Officer, etc.
- Situations where an owner sells a business and then becomes an employee of that business
- Non competes signed before Oct 25, 2021 (although, often these can be challenged)
Upcoming federal changes under the Canada Labour Code (CLC)
It was recently announced that the Canadian federal government plans to amend the Canada Labour Code to restrict non-compete clauses for federally regulated employees who work for banks, airlines, the federal government, etc.
As explained as part of a host of proposed policy changes announced for the 2025 Budget, the Jobs Minister Patty Hajdu announced the plan to eliminate non-competes, noting that it will be featured in the upcoming federal budget on November 4, 2025. The aim of this, as noted by the federal government, is “to protect worker’s rights, promote labour mobility and strengthen competition”. Consultations surrounding the proposed legislative amendments are set to begin in early 2026.
Non-solicitation clauses vs con-compete clauses
While governments and courts increasingly limit non-compete clauses, non-solicitation clauses often remain legally enforceable, provided they are reasonable in time, scope, and geographic area.
The rationale behind this is while a ban on non-competes protects an employee’s ability to earn a living, non-solicitation clauses protect reasonable business interests of employers. As a result, employees should hold a keen eye to any non-solicitation obligations in their employment contracts as unlike non-compete clauses, they may be found to be enforceable.
Get legal advice on restrictive covenants
When it comes to evaluating the enforceability of restrictive covenants, speaking with an experienced employment lawyer can help you understand your rights and legal options. Whitten & Lublin can help. Before signing, contact us online or by phone at (416) 640 2667.
Author – Sophie Teversham
What is a non-compete clause?
A non-compete clause is a term in an employment contract that restricts an employee from working for a competitor or starting a competing business during or after their employment. It is a type of restrictive covenant.
Are non-compete clauses enforceable in Ontario?
Most non-compete clauses signed after October 25, 2021, are automatically unenforceable under Ontario’s Employment Standards Act (ESA). Courts and legislatures prioritize an employee’s right to earn an income.
Who is exempt from Ontario’s non-compete restrictions?
Exceptions include:
- Executives or senior officers (CEO, CFO, CMO, etc.)
- Employees involved in selling a business and then remaining as employees
- Non-compete clauses signed before October 25, 2021 (though these may still be challenged)
What about federally regulated employees in Canada?
The Canada Labour Code is expected to be amended in 2025 to restrict non-compete clauses for federally regulated employees, including those in banking, airlines, and federal government roles. The goal is to promote worker mobility and protect employment rights.
Are non-solicitation clauses enforceable?
Yes. Unlike non-compete clauses, non-solicitation clauses are generally enforceable if they are reasonable in time, scope, and geography, as they protect legitimate business interests of employers.
