Non-Compete Clause in Ontario

What is a Non-Compete Clause?

A non-compete clause in Ontario is often referred to as a “restrictive covenant” that is built into an employment agreement – where it restricts certain actions of an employee once the employment relationship comes to an end.

A non-compete clause is typically used where the employer is attempting to prevent actions that may harm the employer’s business – such as not opening up, or entering into, a competing business, within a particular geographical region for some amount of time. A non-compete clause in Ontario is not an implied term of an employment contract and must be included as its own clause.

What is the enforceability of a Non-Compete Clause in Ontario?

Because they’re presumed to be unenforceable as a restraint of trade, employers are required to show that the clauses are reasonable, necessary and don’t unfairly prevent employees from using their skills.

The courts typically look at the geographical scope of the restriction – where clauses that are too broad or cover too much of a geographical region may be considered unreasonable. Another factor that the courts consider is the length of time that the restriction is in effect – lengths of time exceeding 24 months may be considered unreasonable unless the employer is able to prove a propriety interest that needs to be protected for a longer period of time.

Considering that non-compete clauses restrict an individual’s ability to earn income, the restrictions should have reasonable limits i.e., where they are restricted to conduct business within a geographical region and for some amount of time. Employers are required to meet a high threshold to ensure that the non-compete clause is not to too restrictive, and adequately protect the employer’s business interests.

How do you establish a need for a Non-Compete Clause in Ontario?

Before any other factors are considered, an employer must establish that they possess a proprietary interest that requires protection. If a business is unable to establish this need, it is likely that the non-compete clause will be found unenforceable.

Some additional factors that the courts may consider when determining the enforceability of a non-compete clause includes:

• How much confidential information the employee was exposed to during their employment
• The amount of contact the employee had with the employer’s clients
• The available market of the employer and the rate of competition for the business

Are you subject to a Non-Compete Clause?

In order for an employee to be subject to a non-compete clause in Ontario, the clause must have been included in the employment agreement at the time that the employee signed. If the non-compete clause is not included in the employment agreement, the employee is not subject to non-compete restrictions. For a non-compete clause in Ontario to be enforceable, it must generally be within a limited geographical scope, and for a limited time.

What are the consequences of violating a Non-Compete Clause?

If the non-compete clause is determined to be enforceable, there should be a contract clause which outlines the agreed upon amount of damages that is to be paid should the employee violate the non-compete clause.

If a damage amount is not set out, the employer may file a lawsuit, claiming lost profits or an injunction, to stop the former employee from continuing to engage in the competing activity.

Employees should be mindful that even if a non-compete clause is found to be non-enforceable, the employer may take the matter to court in an attempt to enforce the clause, where the former employee will be required to respond to the claim.

Contact Us 

If you are an employer that needs to enforce a non-compete clause in Ontario, or an employee that has questions about being subject to a non-compete clause in Ontario, our team of experienced workplace lawyers at Achkar Law can help. Contact us by phone toll-free at +1 (800) 771-7882 or email us at [email protected] and we would be happy to assist.

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