The aim of this blog is to delve into the topic of non-compete clauses in employment law. A non-compete clause or non-compete agreement exists to attempt to stop an employee from participating in other activities (such as employment or business activities) that would compete with the employer’s business after the employment relationship ends.

Ontario Prohibits Most Non-Compete Clauses

In October 2021 the government of Ontario prohibited employers from using non-complete agreements either as a clause within an employment agreement or employment contract or as another agreement. This ban is set out in Ontario’s Working for Workers Act and the Employment Standards Act, 2000. As such, in most cases, a non-complete clause (or agreement) is illegal in Ontario and will not be enforceable in Ontario courts.

It does not matter if the non-complete clause or agreement is limited in scope in terms of geography or to a period of time (such as being restricted to a limited period after the employment relationship ends). Also, it further does not matter exactly when a non-compete clause was entered into by the parties. So, for instance, the clause or agreement will remain prohibited if it was entered into either before, after or during the employment relationship.

Non-compete agreements or clauses were already quite difficult to enforce prior to October 2021. There is a common law test that lawyers and judges use to determine whether a non-competition or a “non-compete” clause is valid and enforceable if it existed prior to 2021. As such, if the non-compete clause is from prior to October 2021, it may still be enforceable (by bringing a lawsuit against the employee), but as set out above, courts are generally reluctant to enforce non-compete clauses particularly if they are broad and not specific to certain activities or time periods. For example, if the non-compete includes a large geographical range or is set for a period of years (rather than months) it is unlikely that the courts will allow that clause to be enforceable between the parties.

Certain Exceptions Exist That May Allow Non-Compete Clauses to be Enforceable

There are two possible exceptions where in fact a non-compete clause remains legal and enforceable after the Ontario government’s general ban set in place in October 2021.

1. The sale of a business.

There are several criteria that needs to be met for a non-compete clause to remain enforceable in the situation of the sale of a business. Firstly, the business that was sold must have been operated either as a sole proprietorship or partnership. Secondly, following the sale of the business, the seller of the business becomes the employee of the purchaser of the business. Thirdly, as part of the sale, the parties agree that the seller should be prohibited via a non-compete clause or agreement to refrain from engaging in activities that would be in competition with the purchaser’s business after the sale of that business.

2. Executives.

Individuals who are executives or high-ranking employees of an employer may still be subject to a valid non-compete agreement or clause in an employment contract. Examples of executives who are not prohibited from entering into a non-compete agreement or clause would be individuals who act as the employer’s president, chief executive officer, chief financial officer, etc.

Possible Alternatives to Non-Compete Clauses or agreements is the Non-Solicitation Clause or Non-Disclosure Agreement

There are two main types of clauses or agreements commonly used as alternatives to the prohibition of non-compete clauses.

1. Non-Solicitation Clause or Agreement

A non-solicitation clause or agreement stops the employee from actively engaging with or pursuing the employer’s clients, customers, suppliers, vendors, sellers or business parters after the employee’s employment with the employer ends.

Like non-compete clauses, there is a common law test that courts and lawyers use to determine whether or not these clauses can be enforced.

2. Non-Disclosure Clause or Agreement

A non-disclosure clause or agreement stops the employee from sharing or revealing confidential information from the employer to other third parties such as trade secretes.

How Zeilikman Law Can Help

It is important to speak to an employment lawyer before making any decisions regarding how to interpret an employment agreement with a non-compete clause, particularly if the employee has been wrongfully dismissed. If an employer or employee has any questions regarding a signed non-competition (or non-solicitation) clause in an employment agreement, they are invited to contact one of our experienced employment lawyers to set up a consultation to discuss your options.

For more information about other post-employment obligations that exist please look at our blogs:

• What obligations do departing employees have to their employers?
• The Right to Disconnect from Work and the Downfall of Non-Compete Clauses

Employers and employees can contact our office at (905) 417-2227 or online here to schedule their own confidential consultation with Zeilikman Law.