Use Of Employee Non-compete Agreements About To Become Void In Ontario

Published date28 October 2021
Subject MatterEmployment and HR, Contract of Employment
Law FirmBereskin & Parr LLP
AuthorMr Noel Courage

The Ontario government introduced draft legislation1 that will void non-compete agreements for most employees.

The Non-Compete Agreement

Non-compete agreements between a company and an employee usually come into play when an employee quits and wants to work for a competitor or start their own competing business. However, the previously signed non-compete agreement prohibits the former employee from competing with their ex-employer in a certain area of business. There is usually a specified time limit and geography2. For example, an agreement may prohibit competition in a specified field of business within Ontario for a period of 12 months after employment.

Most commonly, the non-compete agreement is not a stand-alone agreement. It is usually found in the form of a non-complete clause in a larger agreement. Non-compete clauses may appear in an employment contract, a contract for services, or as part of a transaction, such as a sale of a business.

Non-Compete Agreements Were Already on the Ropes in Ontario

I have previously written about how non-compete agreements must be used with caution. Under current Ontario law, there is only a narrow pathway to having a valid non-compete agreement with an employee. They are valid and enforceable only in exceptional circumstances3 Non-compete agreements have long been unpopular with Ontario courts because of public policy interests in employee mobility and competition.

These agreements are still used by some employers, despite the validity issues. These employers either don't know or care about validity issues, or they plan to take their chances on establishing validity later if challenged in court. The employee has the choice to decline an employment offer or negotiate against the clause, but the employee may have limited knowledge, or lack bargaining power compared to the employer. Even if a clause is likely to be invalid, the uncertainty can make a former employee feel restricted from taking a new job with a competitor company. At a minimum, there has been a need to stop employers from abusing non-compete agreements to restrict job mobility of low-paid workers that don't possess company confidential information.

Most Non-Compete Agreements Will Become DOA

Once the new law is passed, if an employer enters into an Ontario employment contract or other agreement that includes a non-compete agreement, that non-compete agreement is void. Even exceptional circumstances will not save the non-compete agreement. The only...

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