Are non-compete agreements in Ontario still enforceable? For most employees, the answer is no. Since October 25, 2021, Ontario's employment standards legislation has prohibited employers from entering into non-compete agreements with their employees, subject to two narrow exceptions.
This article explains what the ban actually covers, which exceptions remain, and which restrictive covenants employers can still rely on. It also explains why the underlying working relationship matters just as much as how a clause is drafted.
Key Takeaways
- Since October 25, 2021, employers in Ontario cannot enter into non-compete agreements with employees, with two narrow exceptions.
- The exceptions cover defined senior executives and sellers who become the buyer's employee immediately after a sale of a business.
- Even where an exception applies, a non-compete must still be reasonable under the common law to be enforced.
- The ban does not apply to non-competes entered into before October 25, 2021, though those remain subject to common law challenge.
- Non-solicitation and confidentiality clauses are not banned, and remain enforceable if reasonably drafted.
- A non-compete drafted for a contractor may be void if that person is actually an employee.
- Older employment templates often still contain non-compete language that no longer works.
What the Ban on Non-Compete Agreements in Ontario Actually Covers
The ban comes from section 67.2 of Ontario's Employment Standards Act, 2000 (ESA), added by the Working for Workers Act, 2021. It took effect on October 25, 2021.
Under this provision, an employer cannot enter into an employment contract, or any other agreement with an employee, that is or includes a non-compete agreement. Any non-compete that breaks this rule is void.
What Counts as a Non-Compete Agreement
A non-compete agreement is one that prohibits an employee from working in a business, occupation, or other activity that competes with the employer's business once the employment ends.
The ban is about restricting competition itself. Clauses that protect specific relationships or information, such as non-solicitation and confidentiality clauses, fall outside it. The Ministry's guide to non-compete agreements sets out how the rules apply.
Agreements Signed Before October 25, 2021
The ban does not apply to non-competes entered into before October 25, 2021. Those agreements are not automatically void.
That does not make them safe. Older non-competes are still assessed under the common law, where courts have long been reluctant to enforce them against employees. Many older clauses would not survive that review.
Exceptions to the Ban on Non-Compete Agreements in Ontario
The ESA sets out two exceptions where an employer can still use a non-compete.
The Executive Exception
The ban does not apply to employees in defined executive positions. These include chief executive officer, president, chief administrative officer, chief operating officer, chief financial officer, chief information officer, chief legal officer, chief human resources officer, chief corporate development officer, and other chief executive positions.
The exception depends on the role the person actually holds, not the title on a business card. An employee with "executive" in their title who does not hold one of these positions is still covered by the ban.
The Sale-of-Business Exception
The ban also does not apply where there is a sale of a business, or part of a business, and the seller becomes an employee of the buyer immediately after the sale. In that situation, the buyer and seller can agree to a non-compete as part of the transaction.
This exception protects the goodwill the buyer is paying for. Our article on non-compete agreements in Ontario business sales explains how these clauses work in a transaction.
Exceptions Still Need to Be Reasonable
Falling within an exception only removes the statutory ban. It does not guarantee the non-compete will be enforced.
The clause must still be reasonable in its scope, geography, and duration under the common law. Courts read these clauses narrowly. In Shafron v. KRG Insurance Brokers (Western) Inc., the Supreme Court of Canada struck down a restrictive covenant because its geographic area was ambiguous, and refused to rewrite it into something enforceable.
A non-compete can fit squarely within an exception and still fail entirely if it is drafted too broadly.
Non-Solicitation and Confidentiality Clauses: What Still Works
The ban changes which tools employers can use. It does not leave employers without protection.
Non-Solicitation Clauses
A non-solicitation clause does not stop a former employee from working for a competitor. Instead, it prevents them from actively pursuing the employer's clients, and sometimes from recruiting former colleagues, for a defined period.
These clauses remain enforceable if they are reasonable. A well-drafted clause usually limits the restriction to clients the employee actually dealt with, sets a clear and modest time period, and protects a genuine business interest.
Courts are alert to non-solicitation clauses drafted so broadly that they act as a disguised non-compete. A clause that effectively prevents someone from working in their field is likely to be struck down.
Confidentiality and IP Assignment Clauses
Confidentiality clauses protect trade secrets, client information, pricing, and other sensitive business information, both during and after employment. They are not affected by the ban.
Intellectual property assignment clauses are also unaffected. They confirm that work product created during the employment belongs to the employer. For work done by contractors, ownership needs separate attention, as our article on IP ownership when working with contractors in Ontario explains.
Together, these clauses can protect much of what a non-compete was originally meant to protect, without running into the statutory prohibition.
Non-Competes for Contractors: The Misclassification Risk
The ESA ban applies to employees, not genuine independent contractors. Some businesses have structured working relationships as contractor arrangements partly to keep a non-compete in place.
That approach is risky. A person's legal status depends on the substance of the working relationship, not the label in the contract. If a "contractor" is actually an employee, a non-compete in their agreement may be void under the ban.
Relationships also change over time. A contractor who started with real independence may gradually take on fixed hours, exclusive availability, and close supervision. Each of these pushes the relationship toward employment, and any restrictive covenant tied to it inherits the same uncertainty.
The CRA's test for contractors in Ontario is a useful starting point, since the same factors often shape how employment status is assessed. Our article on contractor vs. employee misclassification in Ontario covers the wider consequences.
Reviewing Existing Employment Agreements
Many employers still use templates drafted before 2021, or adapted from older agreements. These often contain non-compete language that no longer works.
Reviewing those templates is also a good opportunity to check other terms. Termination clauses in Ontario employment contracts are another common source of unenforceable language in older agreements.
If you have recently converted a contractor to an employee, restrictive covenants drafted for the earlier relationship need a fresh look under the new employment agreement.
When to Involve a Lawyer
The best time to involve a lawyer is when you are drafting or updating your employment agreement templates, before they are signed.
It is also worth getting advice when hiring a senior executive, buying a business where the seller will stay on, or converting a contractor to an employee. Each of these situations affects whether a non-compete is available, and how other restrictive covenants should be drafted.
The Bottom Line on Non-Compete Agreements in Ontario
Non-compete agreements in Ontario are now prohibited for most employees. Only defined executives and sellers in a sale of a business remain exceptions, and even those clauses must be reasonable to be enforced.
For most employers, the better approach is a well-drafted combination of non-solicitation, confidentiality, and IP assignment clauses. Those tools protect client relationships and sensitive information without running into the ban.
If your employment agreements still include non-compete clauses, our team at Levine Law can help. We can replace them with non-solicitation and confidentiality terms that hold up, and confirm whether any exception applies.
Frequently Asked Questions
Are non-compete agreements still enforceable in Ontario?
For most employees, no. Since October 25, 2021, the Employment Standards Act, 2000 has prohibited employers from entering into non-compete agreements with employees, and any non-compete that breaks this rule is void. The only exceptions are defined senior executives and sellers who become the buyer's employee immediately after a sale of a business. Even then, the clause must still be reasonable in scope, geography, and duration to be enforced.
Who is exempt from Ontario's non-compete ban?
Two groups. The first is employees in defined executive roles, such as chief executive officer, president, chief financial officer, or chief operating officer. A title alone is not enough; the person must actually hold the position. The second is a seller who becomes the buyer's employee immediately after a sale of a business. Our article on non-compete agreements in Ontario business sales explains that exception in more detail.
Does the ban apply to non-competes signed before October 25, 2021?
No. The ESA prohibition only applies to non-competes entered into on or after October 25, 2021. Older agreements are not automatically void, but they are still assessed under the common law. Ontario courts have long been reluctant to enforce non-competes against employees, and will strike down clauses that are broader than necessary. Many older non-competes would not survive that review, so they should not be treated as reliable protection.
Are non-solicitation and confidentiality clauses still allowed in Ontario?
Yes. The ban only applies to clauses that restrict competition itself. Non-solicitation clauses, which prevent a former employee from pursuing clients or recruiting staff, remain enforceable if they are reasonable. Confidentiality and IP assignment clauses are also unaffected. However, a non-solicitation clause drafted so broadly that it effectively stops someone from working in their field may still be struck down as a disguised non-compete.
What happens if a contractor with a non-compete is found to be an employee?
The ESA ban applies to employees. If a person treated as a contractor is found to have actually been an employee when the agreement was made, a non-compete entered into on or after October 25, 2021 may be void. Status depends on how the relationship actually works, not on the contract's label. Our article on contractor vs. employee misclassification in Ontario explains how that is assessed.