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Non-Competition Agreements in Ontario Are They Still Enforceable?

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Non-competes are among the most litigated clauses in Ontario business law. The rules changed significantly in 2021 for employment contexts, and courts were skeptical even before that. Here is the current state of the law.

The General Rule: Courts Disfavour Non-Competes

Canadian courts are skeptical of non-competition clauses because they restrict a person's ability to earn a living. A non-compete is a restraint of trade void unless the party enforcing it can prove a legitimate proprietary interest worth protecting, the restriction is reasonable in scope, geography, and duration, and it is not contrary to the public interest. If a clause is broader than necessary, courts will not rewrite it they will strike it entirely.

The October 2021 Change: Employment Agreements

Ontario's Working for Workers Act, 2021 introduced a near-total ban on non-competition clauses in employment contracts entered into after October 25, 2021. Under the amended Employment Standards Act, employers cannot include non-compete clauses in employment agreements with one exception: the sale of a business where the seller becomes an employee of the buyer.

Practical effect: For employment agreements signed after October 2021, non-compete clauses are void under Ontario law. The appropriate substitute is a well-drafted non-solicitation clause. Pre-existing non-competes are not automatically void, but courts were already reluctant to enforce them.

Non-Competes in Business Sale Agreements

The employment ban does not apply to non-competes in the context of a business sale. Courts are substantially more willing to enforce these restrictions because the parties are sophisticated, represented by lawyers, and the restriction protects the goodwill the buyer paid for. Even here, the restriction must be reasonable in scope, geography (limited to the area of the sold business), and duration (typically 2–5 years).

Non-Solicitation: The Better Tool for Employment

Courts are far more willing to enforce non-solicitation clauses prohibiting a departing employee from soliciting the employer's clients or employees than non-competition clauses. In any employment agreement, a well-drafted non-solicitation clause is more enforceable, more targeted, and should always be included even where a non-compete may fail.

Bottom line: In Ontario employment agreements after October 2021, non-competes are effectively banned use non-solicitation clauses instead. In business sale contexts, non-competes remain valid but must be carefully scoped. Always get legal advice before drafting or signing either type of restriction.

References & Further Reading