Non-Compete Clauses in Canada: Are They Actually Dead?

The Headlines Said Non-Competes Are Dead. The Headlines Were Half Right.

If you've been following Canadian employment law, you've probably seen the headlines: "Ontario bans non-compete agreements." "Federal government targets non-competes." "Non-competes are dead in Canada."

These headlines are directionally correct and substantively misleading. Ontario's Working for Workers Act, 2021 (Bill 27) and the federal Affordable Housing and Groceries Act (Bill C-56) have both taken significant steps against non-compete agreements. But the actual legal landscape is more nuanced than a funeral notice. Non-competes are restricted — significantly. But they're not extinct. And the related restrictive covenants that most employers actually care about — non-solicitation and confidentiality agreements — were never touched.

Ontario's Working for Workers Act: What It Actually Says

Effective October 25, 2021, Ontario's Employment Standards Act, 2000 was amended to prohibit employers from entering into non-compete agreements with employees. The definition is straightforward: a non-compete agreement is any agreement that prohibits an employee from engaging in business, work, occupation, profession, or other activity that competes with the employer's business after the employment relationship ends.

The prohibition is broad. It covers non-competes regardless of whether they're time-limited or geographically restricted. A clause that says "you can't compete within 100km for six months" is just as prohibited as one with no limits at all. The substance matters, not the scope.

The prohibition applies before, during, and after the employment relationship. Employers can't ask you to sign a non-compete as a condition of hiring, as a condition of continued employment, or as part of a departure agreement.

And the enforcement mechanism has teeth: employees can file claims with the Ministry of Labour, and employers who penalize employees for refusing to sign a prohibited non-compete face reprisal claims.

The Exceptions That Matter

Here's where it gets interesting. The Ontario prohibition has two significant exceptions, and they're broader than most people realize.

Exception One: C-Suite Executives. The ESA does not prohibit non-compete agreements with "executives," defined as anyone holding the office of:

- Chief Executive Officer

- President

- Chief Administrative Officer

- Chief Operating Officer

- Chief Financial Officer

- Chief Information Officer

- Chief Legal Officer

- Chief Human Resources Officer

- Chief Corporate Development Officer

- Any other "chief executive position"

That last catch-all — "any other chief executive position" — gives employers room to argue that their Chief Revenue Officer, Chief Technology Officer, Chief Marketing Officer, or any other C-level title qualifies. The exception is broader than it first appears, and litigation over what constitutes a "chief executive position" is inevitable.

Exception Two: Sale of Business. When a business (or part of one operated as a sole proprietorship or partnership) is sold, and the seller becomes an employee of the buyer, the buyer and seller can enter into a non-compete. This exception recognizes the economic reality that non-competes in the sale of business context serve a fundamentally different purpose — protecting the goodwill the buyer just paid for.

Bill C-56 and the Competition Act Amendments

The federal Affordable Housing and Groceries Act (Bill C-56) received Royal Assent on December 15, 2023. While the bill was primarily about GST rental rebates and grocery competition, it also amended the Competition Act in ways that affect non-compete agreements.

The amendments added provisions that allow private parties to challenge anti-competitive agreements — including certain types of non-compete clauses — before the Competition Tribunal. This is a significant shift because it creates a second avenue for challenging non-competes, separate from employment law.

For employers, this means that even non-competes that survive the employment law analysis (because they fall within an exception) could face scrutiny under competition law if they're found to substantially lessen or prevent competition. The two frameworks operate independently, and compliance with one doesn't guarantee compliance with the other.

What's Still Enforceable: Non-Solicitation Agreements

Neither Ontario's ESA amendments nor the federal Competition Act changes prohibit non-solicitation agreements. A non-solicitation clause — which prevents an employee from actively pursuing the employer's clients, customers, or employees after departure — remains fully enforceable, subject to common law reasonableness requirements.

But "enforceable" comes with conditions. Canadian courts have a long history of striking down restrictive covenants that are unreasonable, and non-solicitation clauses are no exception. The Supreme Court's decision in Shafron v. KRG Insurance Brokers (Western) Inc., 2009 SCC 6, established a rigorous framework for analyzing restrictive covenants.

In Shafron, the SCC struck down a non-compete clause because it contained ambiguous geographic language — "Metropolitan City of Vancouver" was a term with no clear legal meaning. Critically, the Court rejected the doctrine of "notional severance" — the idea that courts could rewrite an unreasonable clause to make it reasonable. If the clause is ambiguous or overbroad, it fails. Courts won't save it.

For non-solicitation clauses specifically, enforceability requires:

- **Reasonable duration:** Typically 12-24 months. Clauses extending beyond two years face heavy scrutiny.

- **Clear definition of prohibited conduct:** "Soliciting" must be defined. Is it limited to active outreach, or does it capture passive responses to inbound inquiries? The clause must say.

- **Reasonable scope of protected relationships:** Restricting contact with all of the employer's clients is likely overbroad. Restricting contact with clients the employee actually served during their last 12-24 months is more likely to stand.

- **Protection of a legitimate business interest:** The clause must be protecting something real — client relationships, proprietary knowledge, competitive advantage — not just making it harder for a former employee to earn a living.

Confidentiality Agreements: The Surviving Workhorse

Confidentiality and non-disclosure agreements are entirely unaffected by the legislative changes. Employers can still require employees to protect trade secrets, proprietary information, client lists, pricing strategies, and other confidential business information after departure.

In many cases, a well-drafted confidentiality agreement provides most of the protection an employer actually needs — without the enforceability risks of a non-compete. If what you really care about is preventing a departing employee from taking your client database to a competitor, a confidentiality clause achieves that directly. The non-compete was always a blunt instrument; confidentiality is a scalpel.

The Common Law Still Applies to Pre-2021 Non-Competes

Ontario's ban only applies to non-compete agreements entered into on or after October 25, 2021. Non-competes signed before that date are not voided by the legislation. They remain subject to the common law analysis — which, historically, has been quite hostile to non-competes anyway.

Under the common law framework, established through decades of case law including H.L. Staebler Company Limited v. Allan, 2008 ONCA 576, and confirmed by the Supreme Court in Payette v. Guay Inc., 2013 SCC 45, a non-compete must be:

1. Reasonable between the parties

2. Reasonable in the public interest

3. Clear and unambiguous

4. No broader than necessary to protect the employer's legitimate business interest

Courts apply these criteria stringently, and the majority of employment non-competes that reach litigation are struck down. Payette is one of the rare cases where the Supreme Court upheld a non-compete — and it was in the context of a business sale, not a standard employment relationship. The message from the judiciary has been consistent: in the employment context, non-competes are disfavoured because the power imbalance between employer and employee makes genuine bargaining unlikely.

What Employers Should Do Now

The practical advice for Ontario employers is clear:

1. **Stop using non-compete clauses** in standard employment agreements. They're prohibited for most employees and they were rarely enforceable even before the ban.

2. **Invest in non-solicitation clauses** that are carefully drafted, reasonable in scope and duration, and tailored to your actual business interests. A generic template clause won't survive judicial scrutiny.

3. **Use confidentiality agreements** to protect what actually matters — trade secrets, proprietary information, and client relationships.

4. **For C-suite hires**, non-competes remain available, but they should still be drafted with the *Shafron* principles in mind. Just because a clause is legal doesn't mean it's enforceable. Ambiguity kills.

5. **Audit existing agreements** for pre-2021 non-competes that may still be in force. Determine whether they're enforceable under the common law test, and make informed decisions about whether to enforce them.

What Employees Should Know

If you signed a non-compete as part of an Ontario employment agreement after October 25, 2021, it's almost certainly unenforceable — unless you're a C-suite executive or the agreement was part of a business sale. You cannot be penalized for refusing to sign one, and you can file a complaint with the Ministry of Labour if your employer retaliates.

If you signed a non-compete before that date, it may or may not be enforceable depending on the common law analysis. Don't assume it's valid just because you signed it — many pre-2021 non-competes fail the reasonableness test.

And if you're bound by a non-solicitation or confidentiality agreement, those are still live. Don't ignore them. They're narrower than non-competes, but they're enforceable, and breaching them can result in injunctions, damages, and costs awards.

The death of non-competes doesn't mean the death of post-employment restrictions. It means the restrictions have gotten more targeted, more defensible, and in many ways more effective. Employers who adapt will be better off. Employees who assume anything goes will be in for a surprise.