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In October 2021, the Government of Ontario ushered in several changes to the Employment Standards Act, 2000 (“ESA”), one of which was the prohibition of non-competition clauses¹. Ontario was the first province in Canada to do so. While this news made headlines², it has become clear that the amendment simply codified the existing caselaw that interpreted such clauses strictly and narrowly. More importantly, the amendments left in place two exceptions, allowing non-competes for executives and in the context of the sale of a business. As set out below, employers are also still afforded the protection of confidentiality and non-solicitation provisions.

Background

Ontario’s prohibition against non-compete agreements is set out at Section 67.2(1) of the ESA and came into force on October 25, 2021, as part of the amendments included in the Working for Workers Act, 2021. The exceptions are set out at Sections 67(3) and (4).

The ESA defines a non-compete as “an agreement, or any part of an agreement, between an employer and an employee that prohibits the employee from engaging in business, work, occupation, profession, project, or other activity that is in competition with the employer’s business after the employment relationship between the employee and the employer ends.”³

State of the Law Prior to the Amendments

Before the amendments to the ESA came into force, the legislature left it up to the Courts to determine the enforceability of non-competition agreements between employees and employers. This often resulted in employers suing departed employees and after years of expensive litigation, the case would be dismissed, often in favour of the employee.

The common law has been settled for a number of years: non-competes are prima facie void except in limited circumstances⁴. The principles regarding enforcement of non-competition clauses in the employment context are summarized below. 

1. Non-competition clauses in employment agreements are void as a general rule, and will only be enforced in exceptional cases, where a non-solicitation or non-disclosure provision is insufficient to protect the employer’s legitimate proprietary interests.⁵
2. To be enforced, a non-competition clause must also be reasonable between the parties with reference to the public interest.⁶
3. The party seeking to enforce the non-competition clause has the onus to prove that it has a proprietary interest entitled to protection, that the temporal and spatial features of the clause are not too broad, that its terms are clear and certain, not vague and ambiguous, and that, in all circumstances, the restriction is reasonably required for the respondent’s protection.
4. A non-solicitation clause is sufficient in conventional employer/employee situations, such as for ordinary salespeople and employees who do not stand in a fiduciary relationship with their employer.

This approach was intended to strike a balance between the public interest by encouraging competition while at the same time protecting an employer’s business. Courts generally will not use interpretive techniques, such as notional severance or reading down, to enforce such restrictive covenants. The high threshold required to enforce non-competition agreements clearly reflected this goal. By way of example, the table below gives a sample of the history of presumptively unenforceable non-competition agreements in conventional employment relationships (outside of the context of the sale of a business).

Case	Key Employee Facts	The Restrictive Covenant	Decision
Lyons v Multari(2000)	Length of Employment: 17 months Position: Oral Surgeon	Duration: 3 years Scope: 5 miles	Unenforceable
H.L. Staebler Company Limited v Allan(2008)	Length of Employment: 21 & 8 years respectively Position: Insurance Salesmen	Duration: 2 years Scope: N/A	Unenforceable
Mason v Chem-Trend Limited Partnership (2011)	Length of Employment: 17 years Position: Sales Representative	Duration: 1 year Scope: N/A	Unenforceable
Donaldson Travel Inc v Murphy et al.(2016)	Length of Employment: 3 years Position: Travel Agent	Duration: N/A Scope: N/A	Unenforceable
Ceridian Dayforce Corporation v Daniel Wright(2017)	Length of Employment: 5 years Position: Software Developer	Duration: 1 year Scope: North America	Unenforceable
Camino Modular Systems Inc. v Kranidis(2019)	Length of Employment: 4 years Position: VP, Engineering and Technical Sales	Duration: 1 year Scope: Canada and the United States	Unenforceable
Mann Engineering Ltd. v Desai(2021)	Length of Employment: Approximately 10 years Position: Vice President	Duration: 1 year Scope: N/A	Unenforceable

State of the Law Post-Amendments

In light of the general common law rule that non-competition agreements are prima facie void, the legislative amendments to the ESA did little to change the state of the law. To be clear, the exceptions for executives and sales of businesses have remained. While employers previously could have challenged the enforceability of a non-competition agreement, Courts were generally sympathetic to employees, resulting in many employers choosing not to include non-competes for low or mid-level employees.

Since the legislative changes, many employers have questioned whether non-competes entered into prior to the amendments will be enforced. The Ontario Court of Appeal recently confirmed that the amendments do not apply retroactively. This means that non-competition agreements entered into prior to October 25, 2021 are not prima facie void. This is consistent with Interpretation Guide published by the Ontario Ministry of Labour. As a result, non-competes entered into before the legislative amendments will be governed by the common law only, not the ESA. Consequently, recent cases dealing with non-competition agreements entered into prior to the amendments have adopted the same approach as before.

Non-Solicitation & Confidentiality Provisions

The amendments also have no impact on an employer’s ability to protect trade connections through the use of non-solicit provisions. Similarly, employers’ confidential information is protected at common law through the tort of breach of confidence should an employee misuse confidential information gained in the course of their employment. However, it is recommended that employers include non-solicit and confidentiality clauses at the outset of the employment relationship or prior to a promotion.

Takeaways

The ESA’s general prohibition on non-competition agreements should not be cause for alarm. On one hand, it sends a message to employers that non-competes can no longer be used to intimidate non-executive employees, as was the case even where they were intimately unenforceable. However, in Ontario, non-competition agreements in the employment context have always been difficult to enforce and the amendment merely served to codify the common law. At this stage, the amendments do not affect non-competition agreements entered into prior to October 25, 2021. Finally, employers maintain their common law rights regarding confidentiality and can use non-solicit provisions provided they are constructed narrowly.

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For further information, please contact a member of our growing team: Leslie Dizgun, Paul Schwartzman, or Alyssa Jagt.

This publication is intended only to provide general information. It should not be relied on as legal advice.

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1 Employment Standards Act, 2000, SO 2000, c 41, s 67.2(1) [ESA].
2 Jeff Gray, Ontario Introduces Legislation to Ban Non-Compete Clauses for Employees, online: The Globe and Mail.
3 ESA, s 67.1.
4 J.G. Collins Insurance Agencies v Elsey, 1978 SCC 7 (CanLII) at para 16 [Elsey].
5 Ibid.
6 Martin v ConCreate USL Ltd. Partnership, 2013 ONCA 72 (CanLII) at para 2.

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