Are Non-Compete Clauses Legal in Ontario?

Many employees are surprised to learn that most non-compete clauses are illegal in Ontario.

Non-compete clauses attempt to prevent employees from working for competitors or starting a competing business after leaving their job. While these restrictions were once common in employment contracts, Ontario introduced legislation that significantly limits their use.

Today, most employees in Ontario can’t be legally prevented from working for a competitor after leaving their job.

What Is a Non-Compete Clause?

A non-compete clause is a provision in an employment contract that attempts to prevent an employee from competing with their employer after their employment ends.

These clauses may attempt to restrict a former employee from:

• Working for a competing company
• Starting a competing business
• Providing similar services to former clients
• Working within a specific geographic area

Because these restrictions can significantly limit a person’s ability to earn a living, courts have historically treated them with caution.

Ontario’s Ban on Non-Compete Clauses

Ontario introduced a ban on most non-compete clauses through the Working for Workers Act, 2021.

This law amended the Employment Standards Act (ESA) and generally prohibits employers from including non-compete clauses in employment contracts.

As a result:

• Employers generally can’t include non-compete clauses in employment contracts
• Employees are typically free to work for competitors after leaving their job

The goal of the legislation was to improve worker mobility and job opportunities.

However, there are limited exceptions.

When Non-Compete Clauses May Still Be Allowed

Although most non-compete clauses are prohibited in Ontario, the law allows them in certain situations.

These exceptions include:

Sale of a Business

Non-compete clauses may be allowed when someone sells a business and agrees not to compete with the buyer.

This may occur when:

• A business owner sells their company
• The seller becomes an employee of the buyer after the sale
• The contract includes a non-compete clause as part of the transaction

Executive Employees

Ontario law also permits non-compete clauses for certain executive employees, including positions such as:

• Chief Executive Officer (CEO)
• Chief Financial Officer (CFO)
• Chief Operating Officer (COO)
• President of a company

Even in these situations, courts may still examine whether the restriction is reasonable and clearly written.

Why Employers Still Include Non-Compete Clauses

Even though most non-compete clauses are prohibited in Ontario, some employers still include them in employment contracts.

In some cases:

• The employer may not realize the clause is prohibited
• The clause may have been copied from an older contract template
• The employer may hope employees will assume the restriction is enforceable

Non-Compete vs Non-Solicitation Clauses

Many employers now rely on non-solicitation clauses instead of non-compete clauses.

These restrictions serve different purposes.

Non-Compete Clause

Attempts to prevent a former employee from:

• Working for competitors
• Starting a competing business
• Operating within a specific geographic area

Non-Solicitation Clause

Restricts a former employee from:

• Contacting former clients or customers
• Recruiting coworkers
• Redirecting business opportunities

Because non-solicitation clauses are less restrictive, they are more likely to be enforceable.

What Should You Do If Your Contract Contains a Non-Compete Clause?

If your employment contract contains a non-compete clause, you should not assume the restriction is valid.

In many situations:

• The clause may be illegal under Ontario law
• The restriction may be too broad or unclear
• The employer may lack grounds to enforce it

Speak With an Employment Lawyer

Non-compete clauses can create uncertainty when employees change jobs or negotiate employment contracts.

The Ontario employment lawyers at Samfiru Tumarkin LLP have helped tens of thousands of employees across Canada understand their workplace rights.