A non-compete clause in Ontario is an agreement, or part of an agreement, that restricts an employee from competing with their employer after the employment relationship ends. For example, it may try to prevent an employee from working for a competitor, starting a competing business or engaging in other work that competes with the employer.
Since October 25, 2021, Ontario employers have generally been prohibited from entering into non-compete agreements with employees under the Employment Standards Act, 2000. The prohibition was introduced through Bill 27, the Working for Workers Act, 2021.
There are important exceptions, including certain executives and agreements connected with the sale or lease of a business. Different rules may also apply to non-compete agreements entered into before October 25, 2021.
This guide explains Ontario’s non-compete laws, when a non-compete may be enforceable, the exceptions for executives and the sale of a business, and what employees should know before signing or challenging a restrictive covenant.
Are Non-Compete Clauses Enforceable in Ontario?
For most employees in Ontario, an employer cannot enter into an employment contract or other agreement containing a non-compete agreement on or after October 25, 2021.
Section 67.2 of the Employment Standards Act, 2000 prohibits employers from entering into these agreements and provides that a non-compete agreement entered into contrary to the prohibition is void.
Ontario defines a non-compete agreement broadly. It includes an agreement, or part of an agreement, between an employer and employee that prohibits the employee from engaging in a business, work, occupation, profession, project or other activity that competes with the employer’s business after the employment relationship ends.
A restriction may qualify as a non-compete agreement even if it does not specify a particular time period or geographic area.
See the Ontario government’s guide to non-compete agreements and Employment Standards Act, 2000.
Ontario’s Ban on Non-Compete Agreements
Ontario’s prohibition on most employee non-compete agreements was introduced by Bill 27, the Working for Workers Act, 2021.
Although Bill 27 received Royal Assent on December 2, 2021, the non-compete provisions were deemed to have come into force on October 25, 2021, the day the legislation was introduced.
As a result:
- Employers are generally prohibited from entering into non-compete agreements with employees on or after October 25, 2021.
- A non-compete agreement entered into contrary to the prohibition is void.
- The prohibition can apply to agreements entered into before employment begins, during employment or after the employment relationship ends.
- The legislation does not automatically prohibit or void non-compete agreements entered into before October 25, 2021.
Ontario provides detailed guidance in its Employment Standards Act Policy and Interpretation Manual.
What Are the Exceptions to Ontario’s Non-Compete Ban?
The Employment Standards Act, 2000 contains two important exceptions to Ontario’s general prohibition on non-compete agreements: certain executives and certain agreements made in connection with the sale or lease of a business.
Executive Exception to Ontario’s Non-Compete Ban
Ontario’s statutory prohibition does not apply to an employee who meets the Act’s definition of an executive.
The Employment Standards Act, 2000 includes employees who hold 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; or
- Another chief executive position.
This means that simply being a manager or senior employee does not necessarily mean someone falls within the executive exception.
The executive exception means that the ESA prohibition does not automatically make the non-compete agreement void. Whether a particular agreement is enforceable can still depend on its wording and the surrounding circumstances.
Sale or Lease of a Business Exception
Ontario also provides an exception where a non-compete agreement is connected with the sale of a business or part of a business. For this purpose, a sale includes a lease.
The exception can apply where:
- A business or part of a business is sold or leased;
- As part of the transaction, the purchaser and seller enter into a non-compete agreement; and
- Immediately following the sale, the seller becomes an employee of the purchaser.
For example, a person may sell their business, agree not to compete with the purchaser and then continue working for the purchaser as an employee. If the requirements of the statutory exception are met, Ontario’s general prohibition on non-compete agreements does not apply to that agreement.
This is different from an employer simply asking an existing employee to sign a non-compete clause.
See section 67.2 of the Employment Standards Act, 2000 for the statutory exceptions.
What About Non-Compete Agreements Signed Before October 25, 2021?
Ontario’s statutory ban does not prohibit or automatically void non-compete agreements entered into before October 25, 2021.
However, that does not mean every older non-compete agreement is enforceable.
Before Ontario introduced the statutory prohibition, the enforceability of non-compete clauses was generally determined through the courts under common-law principles. Courts have traditionally scrutinized restrictive covenants in employment agreements carefully.
In S. v. KRG Insurance Brokers (Western) Inc., 2009 SCC 6, the Supreme Court of Canada confirmed that restrictive covenants in employment agreements are scrutinized more rigorously than those connected with the sale of a business. Factors such as the activities restricted, duration, geographic scope and clarity of the clause can be relevant to enforceability.
The earlier Supreme Court of Canada decision in E. v. J.G. Collins Insurance Agencies Ltd. also distinguished between restrictive covenants in employment agreements and those arising from the sale of a business.
Employees with an older non-compete agreement should not assume that it is enforceable simply because it predates Ontario’s statutory prohibition.
What If You Are Fired and Have a Non-Compete Clause?
Being terminated does not by itself answer whether a non-compete clause applies.
An important first question is when the agreement was entered into.
If the non-compete agreement was entered into on or after October 25, 2021, it may be prohibited and void under Ontario’s Employment Standards Act, 2000, unless one of the statutory exceptions applies.
If the agreement predates October 25, 2021, or falls within one of the statutory exceptions, its enforceability may involve common-law principles and the specific wording of the agreement.
If you have also received a termination or severance package, it is important to review the employment agreement and termination documents together before signing anything.
Learn more about wrongful dismissal in Ontario and severance pay in Ontario.
Does Ontario’s Non-Compete Ban Apply to Independent Contractors?
Ontario’s statutory non-compete provisions are written in terms of agreements between an employer and an employee. The ESA definition also includes applicants for employment.
A person who is genuinely an independent contractor may therefore be in a different legal position from an employee.
However, whether someone is legally an employee or an independent contractor does not depend only on the title used in a contract. Worker classification can be a separate legal issue.
If you have been asked to sign a non-compete agreement as an independent contractor, it may be important to obtain advice about both your employment status and the enforceability of the restriction.
Non-Compete vs. Non-Solicitation vs. Confidentiality Clauses
Ontario’s statutory prohibition specifically addresses non-compete agreements. It does not mean that every other type of restrictive covenant is prohibited.
| Clause Type | What It Generally Does | Ontario ESA |
|---|---|---|
| Non-Compete | Restricts an employee from competing with the employer after employment ends | Generally prohibited for agreements entered into on or after October 25, 2021, subject to statutory exceptions |
| Non-Solicitation | Restricts solicitation of certain clients, customers, employees or business relationships | Not prohibited by the ESA’s non-compete provisions |
| Confidentiality / NDA | Restricts the disclosure or use of confidential information | Not prohibited by the ESA’s non-compete provisions |
Whether a particular non-solicitation or confidentiality provision is enforceable is a separate legal question.
Ontario’s guidance also makes clear that the substance of an agreement matters. A provision may be treated as a non-compete agreement if its actual effect falls within the statutory definition, regardless of the label used in the contract.
Learn more in our guide to non-competition and non-solicitation clauses.
What Happens If an Employer Tries to Enforce a Non-Compete?
What happens depends on the agreement and the circumstances.
For agreements entered into on or after October 25, 2021, the first issue may be whether the non-compete is prohibited by the ESA or falls within one of the statutory exceptions.
For older agreements, or agreements that fall within an exception, an employer may attempt to enforce the restriction through court proceedings. Depending on the circumstances, an employer could seek remedies such as an injunction or damages.
An employee who receives a demand letter, is threatened with legal proceedings or is told they cannot work for a competitor should obtain legal advice before assuming that the restriction is either enforceable or unenforceable.
Can You Challenge a Non-Compete Clause in Ontario?
Depending on the circumstances, an employee may be able to challenge a non-compete clause in several ways.
These can include:
- Taking the position that the agreement is prohibited and void under the Employment Standards Act, 2000;
- Arguing that an older restrictive covenant is unenforceable under common-law principles;
- Requesting that the employer waive or release the employee from the restriction; or
- Responding to court proceedings if an employer attempts to enforce the agreement.
Ontario’s Ministry of Labour states that an employee, job applicant or former employee may file an ESA claim if they believe they entered into a prohibited non-compete agreement on or after October 25, 2021.
The ESA also contains protections against reprisals for exercising rights under the Act.
Frequently Asked Questions About Non-Compete Clauses in Ontario
Are non-compete clauses legal in Ontario?
Ontario generally prohibits employers from entering into non-compete agreements with employees on or after October 25, 2021. There are statutory exceptions for certain executives and certain agreements connected with the sale or lease of a business.
Are non-compete clauses enforceable in Ontario?
Many employee non-compete agreements entered into on or after October 25, 2021 are prohibited and void under the ESA. Different considerations apply to agreements entered into before that date and agreements that fall within one of the statutory exceptions.
What are the exceptions to Ontario’s non-compete ban?
The ESA provides an exception for employees who meet the statutory definition of an executive and another for certain agreements connected with the sale or lease of a business where the seller becomes an employee of the purchaser immediately after the transaction.
Does the Ontario non-compete ban apply when a business is sold?
Not necessarily. A qualifying agreement between a purchaser and seller may fall within the sale-of-business exception if the statutory requirements are met, including that the seller becomes an employee of the purchaser immediately following the sale.
Can a manager have a non-compete clause in Ontario?
Being called a manager does not by itself place an employee within the ESA’s executive exception. The legislation identifies specific chief executive offices and also refers to another chief executive position.
What if I signed a non-compete before October 25, 2021?
Ontario’s statutory prohibition does not prohibit or automatically void agreements entered into before October 25, 2021. Their enforceability may still be assessed under common-law principles.
Does a non-compete still apply if I am fired?
Termination does not by itself determine the answer. The date of the agreement, whether the ESA prohibition applies, whether an exception applies and the wording and circumstances of the agreement can all be relevant.
Are non-solicitation clauses banned in Ontario?
No. Ontario’s ESA prohibition on non-compete agreements does not generally prohibit non-solicitation agreements. Whether a particular non-solicitation clause is enforceable is a separate issue.
Does the Ontario non-compete ban apply to independent contractors?
The statutory prohibition applies to agreements between employers and employees. A genuine independent contractor may therefore be treated differently, although worker classification itself can sometimes be disputed.
Sources and References
- Ontario, Employment Standards Act, 2000, Part XV.1 – Non-Compete Agreements
- Ontario, Your Guide to the Employment Standards Act – Non-Compete Agreements
- Ontario, Employment Standards Act Policy and Interpretation Manual – Part XV.1, Non-Compete Agreements
- Ontario, Working for Workers Act, 2021 (Bill 27)
- Shafron v. KRG Insurance Brokers (Western) Inc., 2009 SCC 6
- Elsley v. J.G. Collins Insurance Agencies Ltd., [1978] 2 S.C.R. 916
Speak With an Employment Lawyer About a Non-Compete Clause
If you are dealing with a non-compete clause or another issue with your employer, getting legal advice can help you understand your rights and decide what to do next. Monkhouse Law represents employees across Ontario in employment contract, termination, wrongful dismissal and restrictive covenant matters.
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