Non-Compete Agreements in Ontario: What is Enforceable and What is Not
If you are an employee or an employer in Ontario, you have probably heard about non-compete agreements — clauses in employment contracts that try to stop employees from working for a competitor after leaving a job. But are these agreements legally enforceable anymore? And when do they still apply? How can you legally protect your business in Ontario today?
What Is a Non-Compete Agreement?
A non-compete agreement is a clause in an employment contract that tries to stop a former employee from working for a competing business after they leave your company. It might say something like “You cannot work for a competitor for six months” or “You cannot start a similar business within 100 km.” Even if it does not use the words “non-compete,” if the effect of the clause is to prevent someone from working in the same field, it likely still counts.
Ontario’s Ban on Non-Compete Agreements
As of October 25, 2021, most non-compete agreements in Ontario are no longer allowed under the Employment Standards Act (ESA). That means employers generally cannot include these clauses in employment contracts anymore—whether it is before, during or after employment has started.
Why Confidentiality Clauses Are Included In Employment Contracts
Non-compete clauses were often used to protect things like trade secrets, client relationships, or investments businesses made in their employees. The concern was that a former employee might take what they learned and use it to benefit a competitor. But the Ontario government decided these agreements were often too restrictive and unfairly limited people’s ability to earn a living.
The Exceptions: When a Non-Compete Might Still Be Enforceable
Despite the general ban, there are a couple of key exceptions where non-compete agreements can still be valid:
When a Business Is Sold: If someone sells a business and stays on as an employee afterward, they can agree not to compete with the buyer's business after the sale. This protects the value of the business the buyer just purchased.
For Executives: People in high-level roles—like CEOs, CFOs, COOs, or other “chief” positions—can still be asked to sign non-compete clauses. Courts may see these agreements as more reasonable because executives have access to sensitive company strategies and inside information.
Even in these cases, the agreement still needs to be fair and reasonable. It cannot be overly broad or restrictive. A lawyer who focuses on employment law can help assess whether the agreement meets legal requirements.
What Happens With Agreements Signed Before October 25, 2021?
If a non-compete agreement was signed before October 25, 2021, it is not automatically void but it still might not be enforceable by our courts in Ontario.. The courts will look at whether it was reasonable at the time and whether it unfairly limits the employee’s right to work. If you are dealing with an older agreement, it is important to have an employment lawyer review it.
How Do Non-Solicit and Non-Disclosure Agreements Work?
The ban imposed by the Ontario provincial government only applies to non-compete agreements. There are other types of protective clauses that are commonly used. For example, non-solicitation agreements prevent former employees from trying to take clients, vendors, or coworkers with them to a new job. Non-disclosure agreements (NDAs) prohibit employees from sharing confidential or sensitive information after they leave.
Just like with non-competes, these restrictive clauses must also be reasonable in order to be enforceable against the employee. A lawyer can help make sure they are drafted properly so that your business is protected.
What Do Courts Look For When Deciding If a Non-Compete is Enforceable?
In the rare cases where non-competes are allowed, courts will look closely at the details. They will consider:
The time limit: A short restriction (like 6 months) might be okay, while something lasting years could be excessive.
The geographic scope: It is more likely to be upheld if it applies to a specific region, rather than banning competition across an entire country.
The employer’s need: The employer must show there’s a real business interest to protect—like trade secrets or exclusive client relationships.
Fairness to the employee: If the restriction stops someone from earning a living in their field, the court may throw it out.
If the clause is too vague, too broad, or not backed up by a good reason, it may be considered unenforceable, so it is essential for an employment lawyer to review the wording in the contract.
What the Clause Actually Says Is What Matters, Not What It Is Called
Just because a clause is called a “non-compete” does not mean it is one—and vice versa. Sometimes contracts use the wrong labels but what matters is what the clause actually says. For example, if a clause says someone cannot contact former clients, that is likely a non-solicitation clause even if it is under a heading like “Non-Compete.”
Need To Construct a Contract With A Clause That Protects Your Business, or Enforce a Non-Compete? GFW Law Can Help.
As an employer trying to protect your business, it is important to word your contracts properly so that they cannot be construed as containing non-compete clauses. Non-solicitation and non-disclosure clauses are complex, and even small wording issues can affect whether they will stand up in court. At Gionet Fairley Wood LLP, our lawyers are experienced in employment law and confidentiality clauses and can help you draft agreements that are enforceable, or litigate ones that have been violated.
Contact our experienced legal team today through our website, or call us at 705-468-1088. We are here to help in Simcoe County, Muskoka, Grey Highlands, and the surrounding area.
***The information provided in this blog is for general informational purposes only and should not be construed as legal advice. If you have legal questions, we strongly advise you to contact us.