What still works for employers in Ontario now that most non-compete agreements are banned? Ontario's 2021 changes significantly restricted these clauses. Most are now unenforceable outright. This article explains what the ban actually covers, which restrictive covenants remain available, and explains why the underlying employment relationship matters just as much as how a clause is drafted.
Key Takeaways
- Ontario's 2021 changes prohibit non-compete agreements in most employment relationships, with narrow exceptions.
- The ban does not eliminate all restrictive covenants. It changes which types remain legally available.
- Non-solicitation clauses are still enforceable if they are reasonable in scope and duration.
- The two statutory exceptions cover senior executives and non-competes tied to the sale of a business.
- A non-compete drafted for a contractor may become unenforceable if that contractor is later found to be an employee.
- Enforceability depends on the underlying relationship, not only on how carefully the clause is drafted.
- Non-competes signed before October 25, 2021 are not automatically void, but remain subject to common law challenge.
The Shift: What Ontario's Ban Actually Covers
Ontario's 2021 changes significantly restricted the use of non-compete agreements. Most existing and new non-competes are now unenforceable as a result.
Non-competes are prohibited in most employment relationships, and only limited exceptions remain. This shift came through section 67.2 of the Employment Standards Act, 2000. The Working for Workers Act, 2021 added that section, effective October 25, 2021. The provision is direct. Employers cannot enter into an employment contract, or any other agreement with an employee, that includes a non-compete. Any non-compete that violates this rule is void.
This does not eliminate all restrictive covenants an employer can use, but changes which ones remain available. It also shifts the burden onto employers to rely on narrower tools than a blanket non-compete. Confidentiality provisions, IP assignment clauses, and non-solicitation covenants all remain unaffected by the ban. None of them falls within the ESA's specific definition of a non-compete agreement.
The Two Statutory Exceptions
The ban applies broadly, but two specific exceptions remain in place.
The first covers senior executives. Employees holding defined C-suite roles fall outside the prohibition. This includes titles such as chief executive officer, president, or chief financial officer. The second covers the sale of a business. A non-compete can still form part of an agreement where the seller goes to work for the purchaser. This applies whether the seller sold a whole business or just part of one. The seller needs to become an employee of the buyer immediately after the sale closes. This exception protects the value the buyer is actually paying for.
Even where one of these exceptions applies, the clause still needs to meet a further test. It must satisfy the common law standard of reasonableness in scope, geography, and duration. The statutory exceptions only remove the legislative bar. They do not guarantee enforceability on their own. The Supreme Court's decision in Shafron v. KRG Insurance Brokers (Western) Inc. shows how narrowly courts read these clauses. The court struck down a restrictive covenant for using an ambiguous geographic term. That term could not be clearly defined, and the court refused to rewrite it into something enforceable. This principle predates the 2021 ban. It still applies with equal force to the executive and sale-of-business exceptions that survived it. A clause can fall squarely within one of the two statutory exceptions and still fail entirely at common law.
Non-Solicitation Remains a Viable Tool
Non-solicitation clauses are still enforceable, provided they are reasonable in scope and duration.
These clauses work differently than a non-compete. A non-compete restricts where a former employee can work, while a non-solicitation clause focuses narrowly on protecting existing relationships instead. A well-drafted example might prevent a departing employee from actively pursuing the company's clients, and might also stop them from recruiting former colleagues, for a defined period. It does not stop that person from working in the same industry, and does not stop them from working for a direct competitor either.
This distinction matters for employers rebuilding their contract templates after the 2021 changes. A properly scoped non-solicitation clause can protect much of what a non-compete was originally meant to protect. It can do this without running into the statutory prohibition at all. Many employers who lost non-compete protection in 2021 lean more heavily on non-solicitation and confidentiality clauses now.
A non-solicitation clause still needs careful scoping to hold up. It should name specific clients and define the restricted period clearly. It should also limit the restriction to relationships the employee actually managed. Doing this helps a court view the clause as protecting a genuine business interest. It looks less like blocking competition through another label. Courts remain alert to non-solicitation clauses drafted broadly enough to function as a disguised non-compete. They will strike those down using the same reasonableness analysis that applies to non-competes generally.
Misclassification Risk
A non-compete or restrictive covenant drafted around a contractor relationship carries its own separate risk.
A contractor may later be found to actually be an employee. If that happens, a non-compete built for that contractor relationship may become unenforceable. The ESA's non-compete prohibition applies to employees. A working relationship's legal classification is determined by its actual substance, not by the label used in the contract. A business may have structured someone as a contractor specifically to preserve a non-compete. That business may find the underlying classification does not hold up on its own terms once it is actually tested.
The classification affects enforceability directly. Understanding how the CRA's test for contractors in Ontario applies is a useful starting point here. The same functional factors that determine tax treatment often shape how a court views employment status for other purposes too.
Many businesses genuinely believed a role qualified as a contractor relationship when the agreement was drafted. That classification can still get challenged years later, once the working relationship has evolved. A contractor who started with real independence can gradually take on fixed hours and exclusive availability. Close day-to-day supervision often follows. All of that pushes the relationship toward employment, regardless of what the original contract called it. Any restrictive covenant tied to that agreement inherits the same uncertainty.
The Practical Takeaway
The enforceability of restrictive covenants depends on more than careful drafting. It depends on the underlying relationship the covenant is actually attached to.
If that relationship is misclassified, the covenant may not hold. This is true regardless of how precisely the clause itself was written. This is particularly relevant for businesses that have gone through a contractor to employee conversion. Restrictive covenants drafted for the earlier contractor relationship need a fresh look under the new employment structure. Reviewing covenants alongside contractor versus employee misclassification is a practical way to catch this risk early. It is far better to catch it early than to discover it once a dispute is already underway.
Frequently Asked Questions
Are non-compete agreements still legal in Ontario?
Mostly no. Since October 25, 2021, the ESA prohibits non-competes in most employment relationships, with two narrow exceptions.
Who is exempt from Ontario's non-compete ban?
Defined senior executives, and sellers of a business who immediately become employees of the buyer after closing.
Are non-solicitation clauses affected by the ban?
No. Non-solicitation clauses remain enforceable if they are reasonable in scope and duration under common law.
Does the ban apply to non-competes signed before October 25, 2021?
No, not automatically. Older agreements can still be challenged under common law reasonableness standards instead.
Can a non-compete drafted for a contractor still apply if they become an employee?
Often not. If the contractor is found to be an employee, the ESA prohibition may apply retroactively to the clause.
What makes a non-solicitation clause enforceable where a non-compete would not be?
It protects relationships rather than blocking competition broadly, which courts and the ESA treat very differently.
Do executive exceptions apply automatically to senior-sounding job titles?
No. The ESA defines specific C-suite roles precisely, and a title alone does not guarantee the exception applies.
Should existing employment contracts be reviewed for non-compete compliance?
Yes. Contracts drafted before 2021, or reused from older templates, often still contain now-unenforceable non-compete language.
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