Non-compete clauses are one of the most restrictive provisions that can appear in an employment contract. These clauses attempt to prevent employees from working for competitors or starting a competing business after leaving their job.
In Ontario, most non-compete clauses in employment contracts are illegal and unenforceable.
Ontario introduced legislation that generally bans non-compete clauses for employees, meaning most employers are no longer allowed to include them in employment agreements.
However, there are limited exceptions, and employers may still attempt to rely on non-compete clauses in certain circumstances.
What Is a Non-Compete Clause?
A non-compete clause is a contractual restriction that prevents an employee from working for a competitor or starting a competing business after leaving their employer.
These clauses may attempt to restrict a former employee from:
- Work for a competing company
- Start a competing business
- Providing similar services to former clients
- Operating within a specific geographic area
Because these restrictions can significantly limit a person’s ability to earn a living, courts have historically treated non-compete clauses with caution.
Are Non-Compete Clauses Legal in Ontario?
In most cases, no.
Ontario introduced a ban on non-compete clauses through the Working for Workers Act, 2021. This legislation amended the Employment Standards Act (ESA) to prohibit employers from including non-compete clauses in employment contracts.
As a result:
- Employers generally can’t include non-compete clauses in employment agreements
- New employment contracts can’t restrict employees from working for competitors after leaving their job
This change was designed to improve worker mobility and job opportunities.
Exceptions to Ontario’s Non-Compete Ban
Although non-compete clauses are generally banned in Ontario, the law allows them in limited situations.
Sale of a Business
A non-compete clause may be enforceable when someone sells a business and agrees not to compete with the buyer.
This often occurs 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 sale agreement
Executives
Ontario law also allows non-compete clauses for certain executive employees.
This typically includes individuals who hold senior positions such as:
- Chief Executive Officer (CEO)
- Chief Financial Officer (CFO)
- Chief Operating Officer (COO)
- President of a company
What About Older Non-Compete Clauses?
Some employees signed employment contracts before the Ontario ban came into effect.
In those cases, the enforceability of the clause may depend on:
- When the contract was signed
- Whether the restriction is reasonable
- Whether the clause is clearly written
Non-Compete vs Non-Solicitation Clauses in Ontario
Employers sometimes use non-solicitation clauses instead of non-compete clauses.
These clauses serve different purposes.
Non-Compete Clause
Attempts to restrict a former employee from:
- Working for competitors
- Starting a competing business
- Operating within a certain geographic area
Non-Solicitation Clause
Restricts a former employee from:
- Contacting former clients or customers
- Recruiting coworkers
- Redirecting business opportunities
Learn more in our guide to non-solicitation clauses in Canada.
What If Your Employer Tries to Enforce a Non-Compete Clause?
If an employer threatens to enforce 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 overly broad or unclear
- The employer may lack grounds to enforce it
Speak With an Employment Lawyer
Non-compete clauses can create uncertainty when changing jobs, especially if your employer claims the restriction still applies.
The Ontario employment lawyers at Samfiru Tumarkin LLP have helped tens of thousands of employees across Canada understand their rights and resolve workplace disputes.