Ontario’s New Legislation

Ontario amended its statute effective October 25, 2021. From that date forward employers are prohibited, with certain exceptions, from entering into a contract with an employee which contains a “non-compete” term. ¹

This term is defined to be one which prohibits the employee from engaging in any business, work, occupation, profession, project or other activity that is in competition with the employer’s business, after the employment relationship between the employee and the employer ends.

It need not be time limited or geographically restrained.

Such a clause may not be used even after the employment relationship ends.

Exceptions

This would not apply in situations where the relevant business has been sold, following which the vendor becomes an employee of the buyer, or the seller agrees not to complete with the buyer after the sale is completed.

The second exception applies to an executives, defined as :

• • 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
  • any other chief executive position

Non-compete agreements entered into before October 25, 2021

The ESA does not prohibit non-compete agreements that were entered into before October 25, 2021.

The new provisions do not apply to non-solicit covenants or non-disclosure agreements.

Enforcement

A person who believes that these terms have been violated may file a complaint with the Ministry of Labour. Should such person have suffered from adverse treatment because of refusal to execute such a contract, there will be a reprisal remedy under the statute.

Overview

The drafting of such a term in an employment contract will be aided by a general view of the law relating to the enforceability of such covenants.

There are two types of covenants which restrain a person's ability to carry on competitive employment, which are usually collectively referred to as "restrictive covenants". There is a third form which is a confidentiality covenant, discussed distinctly, as the test of enforcement is somewhat different.

These are (1) non-competition clauses ("NCA") and (2) non-solicitation clauses.

An NCA is the more restrictive of the two. It purports to stop the employee from competing with the business of the employer.

The less demanding is the non-solicitation covenant, which typically requires the employee to refrain from soliciting business of the past employer, and or soliciting past employees or dealing with the suppliers of the former employer. It should be read carefully as occasionally it also prevents the employee from even accepting business from the clients or customers of the employer, whether or not there was active solicitation. As noted below, case law has held such a clause, which extends its protection beyond a non-solicit covenant, will cause the non-solicit to be viewed as a NCA and hence subject to a more rigorous test of enforcement.

The terms employer and employee are used to facilitate the discussion. It need not be an employment relationship as noted with the cases involving a sale of a business and subsequent NCA or non-solicit agreements.