Non-Compete Agreements in British Columbia Explained

In most employment situations, non-compete clauses are illegal and unenforceable in Ontario. Since October 25, 2021, Ontario's Employment Standards Act (ESA) prohibits employers from entering into non-compete agreements with employees, subject to limited exceptions. However, non-competes may still be valid in certain commercial contexts.

What is a non-compete agreement?

A non-compete clause restricts a person from working for a competitor, starting a competing business, or soliciting certain clients or customers after leaving a job. In employment, these clauses attempt to limit where someone can work after their employment ends.

Ontario's non-compete ban explained

Section 67.2 of the Employment Standards Act makes it illegal for employers to enter into a non-compete agreement with an employee or include a non-compete clause in an employment contract. This applies to most employees in Ontario. If an employer violates this rule, the clause is void.

When are non-compete agreements still enforceable?

The sale of business exception

Non-compete agreements are still enforceable when they form part of the sale of a business and the seller becomes an employee of the purchaser immediately after the sale. This exception protects the buyer's investment and goodwill and is known as the sale-of-business exception.

Non-competes under common law

Before the ESA ban, courts already treated employment non-competes with skepticism. Courts would only enforce a non-compete if it was reasonable in duration, reasonable in geographic scope, and necessary to protect legitimate business interests. Even today, commercial non-competes between parties who are not in an employment relationship may still be enforceable if they meet strict legal standards.

Non-competes for executives and shareholders

The ESA ban does not automatically exempt executives. However, courts may treat restrictive covenants differently in commercial transactions involving shareholders, partners, or owners selling their businesses. Whether a clause is enforceable depends on the substance of the arrangement, not the person's title.

What about independent contractors?

Independent contractor agreements are not automatically protected by the ESA. However, courts may analyze the true nature of the relationship. If the contractor is effectively an employee, the ban may apply. Misclassification is common in these cases and worth examining carefully.

What happens if you breach a non-compete?

An employer may attempt to seek an injunction, claim damages, or threaten litigation. However, many employment non-competes are unenforceable and used primarily as deterrents. Legal review is critical before assuming a clause is valid or that a breach carries real consequences.

What employers rely on instead

Since most employment non-competes are now void, employers are more likely to rely on other enforceable restrictions.

Frequently asked questions about non-compete agreements in Ontario