Non-compete clauses now prohibited in Ontario

In Ontario, you cannot have a non-competition clause with employees except in very narrow circumstances.

On February 2, 2022, we posted about one part of the Working for Workers Act (“Act”) that came into force in Ontario in December 2021. The Act requires employers to create a policy about the employee’s right to disconnect. You can read that post here.

The Act also amends the Employment Standards Act (“ESA”) in Ontario in another way. Specifically, the ESA now prohibits employers in Ontario from having non-compete clauses in their employment contracts. This prohibition is effective from October 25, 2021.

Here is a quick summary of the parameters of the prohibition on non-compete clauses:

• The prohibition only applies to employees who are protected by the ESA (as opposed to contractors or employees protected by the Canada Labour Code, etc.).
• The prohibition does not apply to non-compete clauses in the context of the sale of a business.
• The prohibition does not apply to certain types of executive contracts.
• The prohibition does not apply to confidentiality clauses and non-solicitation clauses.
• The new provisions do not affect non-compete clauses entered before October 25, 2021 (see the recent decision of Parekh v. Schecter, 2022 ONSC 302).

For all employers with employees in Ontario, this is a significant amendment to the ESA that requires revision of employment contract templates for 2022. Failing to revise employment agreements will result in a breach of the ESA.

Employers who hired an employee in Ontario after October 25, 2021, and the agreement contains a non-compete clause, should seek advice about the need to revise their agreement with those employees.

Still have questions about employment standards? Contact Scott Marcinkow or anyone else from our team listed on the Authors page.