Non-Compete Agreements in Ontario Explained
Ontario employers, whether for-profit or non-profit, continue to face major confusion about whether non-compete agreements are still legal. Since the Working for Workers Act, 2021, amended the Employment Standards Act, 2000 (ESA) to ban most non-competition clauses, many organizations mistakenly believe all non-competition clauses are unenforceable.
That misconception exposes employers to significant risk.
In reality, Ontario now operates under a dual restrictive-covenant system:
- Employment non-competes are almost always illegal and void.
- Commercial non-competes tied to the sale of a business remain fully enforceable, and courts continue to uphold them.
For employers, purchasers, boards of directors, and non-profit organizations managing acquisitions or leadership transitions, understanding this distinction is critical.
This guide breaks down:
- What Ontario’s non-compete ban actually prohibits
- When non-competes remain fully enforceable
- The key lessons from Sims, the leading Ontario Court of Appeal case
- How to avoid common drafting pitfalls, especially for pre-2021 “legacy” contracts
Ontario’s Ban on Employment Non-Competes: What It Actually Covers
Section 67.2 of the ESA prohibits employers from entering into any agreement with an employee that restricts them from competing after employment ends.
A non-competition clause is illegal if it restricts the employee from engaging in:
- Any competing business
- Any occupation or project that competes
- Any form of work that overlaps with the organization’s operations
This applies to all employees, including:
- Entry-level staff
- Managers and supervisors
- Temporary staff
- Non-profit sector employees
- Executives (unless they fall under the sale-of-business exemption)
Any non-compete that violates the ESA is void even if the employee signs it.
💡 Employer Tip
Even including an unenforceable non-compete in a contract can undermine the employer’s credibility and raise red flags in litigation or during contract negotiations.
The Critical Exception: Non-Competes in the Sale of a Business
The ESA contains one major exception:
- Non-competes are allowed when connected to the sale of a business, provided the seller becomes an employee of the buyer immediately after the sale.
This protects the buyer’s investment, especially the goodwill and client relationships included in the purchase price.
The Sims Case: The Leading Ontario Authority
In Dr. C. Sims Dentistry Professional Corporation v. Cooke, the Ontario Court of Appeal upheld a five-year, 15-kilometre non-competition clause signed during the sale of a dental practice.
The Court emphasized:
- Commercial non-competes differ from employment non-competes
- Sellers and buyers typically have equal bargaining power
- The purchaser paid for goodwill, protecting that investment is essential
- Courts will enforce commercially reasonable restrictions
This remains the governing standard today.
💡 Key Takeaway for Employers (For-Profit & Non-Profit Alike)
If your organization acquires a business, clinic, program, or division, a well-drafted commercial non-compete is still one of the most powerful tools to protect what you paid for.
How Courts Decide Whether a Non-Compete Is “Commercial” or “Employment”
Courts do not rely only on labels.
They examine:
1. Timing
- Was the covenant signed as part of the transaction?
- Or years later, during ongoing employment?
2. Purpose
Is the clause protecting purchased goodwill or simply restraining an employee?
3. Bargaining Power
- Were both parties represented by counsel?
- Was the transaction negotiated commercially?
4. Structure
- Is the non-compete embedded in the transaction documents?
- Is it clearly linked to the sale price and goodwill?
If the covenant looks like an employment restriction, it will be judged under the strict employment-law standard and almost certainly struck down.
The Sale-of-Business Exception in the ESA
Under s. 67.2(3) ESA, a non-compete remains legal if:
- It is part of the sale or lease of a business, AND
- The seller becomes an employee of the purchaser immediately after the sale
This covers scenarios such as:
- Physicians or dentists selling a practice
- Small businesses are being acquired
- Non-profits transferring programs or operations
- Mergers and amalgamations
- Succession planning where the founder transitions into an employee role
What the exception does NOT allow
You cannot:
- Give an employee 1% equity simply to justify a “sale of business” non-compete
- Retroactively label an employment contract as “commercial.”
- Attach a non-compete for years after the transaction
Courts look at substance, not form.
As Christopher Achkar, employment lawyer and founder of Achkar Law, explains:
“Ontario’s strict limits on non-compete agreements mean even well-intentioned contracts can expose employers to significant risk if they’re not carefully drafted. Before relying on a non-compete to protect your business, it’s critical to speak with an employment lawyer who understands what the law actually allows.”
The “Legacy Contract” Problem: Are Pre-2021 Non-Competes Still Valid?
Ontario’s ban is not retroactive. Non-competes signed before Oct. 25, 2021, are not automatically void under the ESA.
But:
Older non-competes must still pass common-law reasonableness tests, including:
- Geographic scope (Is the territory too broad?)
- Duration (Is it longer than necessary?)
- Activities prohibited (Does it stop the employee from working in any role?)
- Proprietary interest (Is there a legitimate interest to protect?)
Many pre-2021 covenants fail this test, particularly those involving:
- Province-wide or Canada-wide restrictions: “Any role with a competitor.”
- bans (the “Janitor Problem”)
- Unlimited duration
Employers relying on outdated contracts may have little protection, and may not know it until litigation.
💡Employer Action Item
Audit all legacy agreements and update them to modern, enforceable standards.
Practical Guidance for Ontario Employers
For-profit Employers (Private and Public Corporations)
- Use commercial non-competes only in genuine business acquisitions
- Avoid including non-competes in standard employment contracts
- Strengthen non-solicitation and confidentiality clauses instead
- Audit any pre-2021 agreements; many will not hold up in court
- Integrate restrictive covenants directly into purchase agreements
Non-Profit Employers
Non-profit organizations often:
- Acquire programs
- Absorb smaller community organizations
- Transition founders into employee roles
- Merge with or take over charitable operations
In all these cases, the commercial exception can still apply.
Non-profits must also protect:
- Donor lists
- Membership data
- Community partnerships
- Program goodwill
These can be safeguarded through carefully drafted commercial non-competes, if used lawfully.
Conclusion: The Non-Compete Isn’t Dead, But It’s Now a Specialized Tool
For most employees, non-compete clauses are illegal and unenforceable in Ontario.
But for employers involved in:
- Buying or selling a business
- Merging operations
- Transferring goodwill
- Succession planning
…a properly drafted commercial non-compete remains one of the strongest protections available.
The key is understanding the distinction between employment and commercial contexts, and ensuring your agreements reflect the modern legal landscape.
Need Help Drafting or Enforcing a Non-Compete?
Whether you operate a for-profit company, professional practice, or non-profit organization, our employment lawyers help you:
- Structure enforceable commercial non-competes
- Audit old contracts to identify risks
- Draft compliant employment agreements
- Protect goodwill, donor lists, clients, and proprietary information
- Defend your organization in restrictive-covenant disputes
Contact Achkar Law today to protect your business and avoid costly restrictive-covenant mistakes.
The article in this client update provides general information and should not be relied on as legal advice or opinion. This publication is copyrighted by Achkar Law Professional Corporation and may not be photocopied or reproduced in any form, in whole or in part, without the express permission of Achkar Law Professional Corporation. ©