Non-Compete Clauses

Ontario has banned most non-compete clauses. Our lawyers assess whether your restrictive covenant is enforceable and defend your right to compete after employment.

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Bill 27 AnalysisNon-Compete BanRestrictive CovenantsNon-SolicitationPost-Employment Rights

Since October 25, 2021, most non-competition agreements with Ontario employees are void under the Working for Workers Act.

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Quick Answer

Are all non-compete clauses banned in Ontario?

No. Bill 27 bans non-compete clauses in most employment agreements entered into on or after October 25, 2021, but there are two exceptions: C-suite executives and persons who become employees of a purchaser as part of a sale of business. Non-competes in agreements predating Bill 27 are not automatically voided by the statute, but they remain subject to the common law enforceability analysis.

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BILL 27 NON-COMPETE BAN

The Working for Workers Act Changed Everything

Bill 27, the Working for Workers Act, 2021, introduced section 67.2 to the Employment Standards Act, 2000, which prohibits employers from entering into employment contracts or other agreements that include non-competition clauses. This statutory ban applies to agreements entered into on or after October 25, 2021, and represents one of the most significant reforms to Ontario employment law in decades.

The ban contains two narrow exceptions. First, non-compete clauses remain permissible for individuals who hold the position of chief executive officer, president, chief administrative officer, chief operating officer, chief financial officer, chief information officer, chief legal officer, chief human resources officer, or chief corporate development officer, or any other chief executive position. Second, non-compete clauses are permitted in the context of a sale of a business where the seller becomes an employee of the purchaser.

At Lexaltico LLP, we advise employees on whether their non-compete clause falls within the statutory ban or one of its exceptions, and we challenge employers who attempt to enforce void non-competition agreements.

ENFORCEABILITY ANALYSIS

Common Law Tests for Restrictive Covenants

Even where Bill 27 does not apply, such as for pre-October 2021 agreements, executive-level non-competes, or non-solicitation clauses, the common law imposes strict requirements for enforceability. Restrictive covenants are restraints of trade and are presumptively void. The employer bears the burden of demonstrating that the restriction is reasonable between the parties and in the public interest.

Under the framework established in Elsley v. J.G. Collins Insurance Agencies Ltd., [1978] 2 SCR 916, and applied in Mason v. Chem-Trend Limited Partnership, 2011 ONCA 344, courts assess reasonableness based on three factors: (1) whether the covenant is reasonable in temporal scope; (2) whether it is reasonable in geographic scope; and (3) whether the activity restricted goes no further than necessary to protect the employer’s legitimate proprietary interest.

Critically, Ontario courts will not rewrite an overbroad restrictive covenant. In Transport North American Express Inc. v. New Solutions Financial Corp., 2004 SCC 7, the Supreme Court held that “blue pencil severance” is available only in limited circumstances, a court may sever an independent, clearly severable provision, but it will not rewrite the clause’s terms to make them reasonable.

DEFENDING YOUR RIGHT TO COMPETE

What To Do When an Employer Threatens Enforcement

Employers frequently use non-compete and non-solicitation clauses as tools of intimidation, sending cease-and-desist letters and threatening injunctive relief even when the clause is unenforceable. If you have received a demand letter or threat of litigation based on a restrictive covenant, you need experienced counsel to assess the enforceability of the restriction and respond decisively.

For an employer to obtain an interlocutory injunction enforcing a restrictive covenant, they must satisfy the test from RJR-MacDonald Inc. v. Canada, [1994] 1 SCR 311: a serious issue to be tried, irreparable harm, and a balance of convenience favouring the employer. Where the covenant is clearly void under Bill 27 or fails the common law reasonableness test, the employer cannot establish a serious issue, and the injunction application will fail.

Our team responds to restrictive covenant threats with thorough legal analysis, strategic counter-correspondence, and, where necessary, vigorous litigation defence to protect your ability to earn a livelihood in your field.

Frequently Asked Questions

Are all non-compete clauses banned in Ontario?

Does the non-compete ban apply to independent contractors?

The ESA, including the Bill 27 non-compete ban, applies only to employees, not independent contractors. However, if you are classified as an independent contractor but your working relationship has the characteristics of employment, you may be a dependent contractor or misclassified employee entitled to ESA protections. The legal characterization of the relationship depends on substance, not the label in your agreement.

Can my non-solicitation clause be struck down even though it is not a non-compete?

Yes. Non-solicitation clauses are not banned by Bill 27, but they must still be reasonable in scope, duration, and geography under the common law. A non-solicitation clause that is overly broad, for example, one that restricts contact with any client of the employer regardless of your prior relationship, may be found unenforceable.

What should I do if my former employer sends a cease-and-desist letter?

Do not ignore it, but do not assume the restrictive covenant is enforceable. Seek legal advice immediately. Many cease-and-desist letters rely on clauses that are void under Bill 27 or unenforceable at common law. An experienced employment lawyer can assess the enforceability of the restriction and draft a response that protects your interests.

Can my employer get an injunction to stop me from working for a competitor?

Only if the employer meets the three-part test for an interlocutory injunction: a serious issue to be tried, irreparable harm, and the balance of convenience. If the non-compete clause is void under Bill 27 or unenforceable at common law, the employer cannot establish a serious issue and the injunction will likely fail.

What is the difference between a non-compete and a garden leave clause?

A non-compete restricts you from competing after employment ends, typically without compensation during the restriction period. A garden leave clause requires the employee to remain employed (and paid) during a notice period during which they are not required to attend work. Garden leave clauses are generally enforceable because the employee continues to receive compensation during the restriction.

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