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Saying “No” to Non-Competition Clauses – The lowdown on Ontario’s historic new employment law

Saying “No” to Non-Competition Clauses – The lowdown on Ontario’s historic new employment law

Late last year, you may have heard that there were significant changes to Ontario’s employment laws, specifically to non-compete agreements. Well, you heard correct, and here is a lowdown on the changes to non-compete provisions in Ontario under Bill 27, the Working for Workers Act, 2021.

In November 2021, the Ontario Legislature passed Bill 27, an omnibus bill, which received Royal Assent on December 2, 2021. The bill named the Working for Workers Act, 2021 made a few housekeeping amendments and some substantive changes, including a new prohibition against non-compete agreements with employees.

Non-compete clauses have been an interesting space to monitor in Ontario over the past several years. The agreements were hard to enforce to start with, and courts only enforced non-compete provisions that contained reasonable restrictions with appropriate carve-outs.

The legislative change is a monumental moment for employment law in Canada, as it marks the first time a Canadian province legislated the prohibition of non-compete provisions. This legal development is intended to attract and retain global talent and investments within the province.

The Act itself defines a non-compete agreement as:

An agreement, or any part of an agreement, between an employer and an employee that prohibits the employee from engaging in any 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 employer ends.

There are two exceptions to the prohibition, which allow employers to enter into non-compete agreements:

  1. Executives, defined as “any person who holds the office of chief executive officer, president, chief administration officer, chief operating officer, chief financial officer, chief information office, chief legal officer, chief human resources offices or chief corporate development officer, or holds any other chief executive position”.

  2. Sellers of part of all of their business, who become employees of the buyer immediately following the sale.

Unlike some other amendments that came into effect with the bill, the prohibition of non-compete agreements came into effect on December 2, 2021. There is no grandfathering or transition period for employers or employees.

However, we should note that the non-compete prohibition does not affect the use of other forms of restrictive covenants. Thus, given the codification of the restriction, employers are free to use and explore different methods of protecting their business lines. Here are a few options that we may see gain popularity in Ontario.

Confidentiality clause

This kind of clause allows a company to exercise control over the use and sharing of trade secrets and confidential information. The clause can set out express terms and expectations relating to confidential information and how such information is used and shared once someone is no longer employed at the company. 

Non-solicitation clause

A company can use this kind of clause to prevent employees leaving the company from soliciting clients, customers or employees from their previous employer.

Employers should review their current non-compete agreements and ensure they comply with the current legislation. It is also wise to inform employees who are subject to a (now) non-compliant, non-compete provision that it is no longer in force. Employers and employees may also want to familiarize themselves with the other forms of restrictive covenants, which may become more commonplace in Ontario workplaces.

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