Following in Ontario’s footsteps, the federal government recently introduced legislation that, if passed, will amend the Canada Labour Code to ban most non-compete covenants in federally regulated workplaces.[1]
A non-compete covenant can be an important means to protect an employer’s business interests, such as confidential information, key relationships, and competitive secrets.
Fortunately, even if the federal ban comes into effect, there are other types of restrictive covenants available to employers (in every Canadian jurisdiction), so long as they are properly designed and executed.
Non-Compete and Other Restrictive Covenants
The three most common types of restrictive covenants are:
- Non-compete: prohibits an employee from competing against their former employer (e.g., joining a competitor or starting a competing business).
- Non-solicit: prohibits an employee from soliciting clients, suppliers, or employees, etc.
- Non-disclosure: prohibits an employee from using and/or sharing confidential information such as business information, trade secrets, client names, etc.
Canadian courts have severely limited the circumstances in which a restrictive covenant is enforceable after an employment relationship ends because the covenant is considered a restraint of trade. As a result, the burden rests with the employer to demonstrate a restrictive covenant represents the minimal degree of restriction required to protect the organization’s legitimate business interests.
A non-compete covenant is generally considered the most restrictive because it can prevent an employee from working in their chosen field. To date, Ontario is the only Canadian jurisdiction with a legislative ban on a non-compete covenant. Elsewhere, their use is governed by common law (see Other Provinces).
Ontario Ban
As of October 25, 2021, an employer in Ontario is prohibited from entering into a non-compete covenant with an employee, except if:
- An individual sells or leases a business and immediately afterwards becomes an employee of the purchaser, or
- The employee is a C-suite executive, such as a chief executive officer, president, chief legal officer, chief administrative officer, etc.
A non-compete covenant agreed to before October 25, 2021, remains valid so long as it otherwise complies with common law (see Other Provinces).
Proposed Federal Ban
Similar to Ontario, exceptions apply if an individual leases or transfers a business to the employer and immediately afterwards becomes an employee of the employer, or if the employee is a C-suite executive. However, unlike in Ontario, an employer will have a one-year grace period in which an existing non-compete covenant will continue to apply. After that, the non-compete covenant will be void.
Significantly, the federal legislation opens the door to further limitations on the use of restrictive covenants by giving the government the power to ban “other employment-related restrictions” by regulation.
Other Provinces
For employers not subject to Ontario or federal employment regulation – the good news is a non-compete covenant remains available, provided it complies with common law. So, too, does a non-solicit and non-disclosure covenant, even in Ontario and federally.
As noted above, under common law, a restrictive covenant is presumptively unenforceable as it acts as a “restraint of trade.” A court will only uphold it if it is reasonable between the parties and serves a legitimate proprietary interest, such as protecting trade secrets or established client relationships. This has been interpreted to mean the following:
- Activity restricted: The scope of what is prohibited must be clear (not ambiguous) and no broader than necessary.
- Geographic scope: The territory must be defined and limited to where the employer actually operates and the employee provided services. Worldwide or undefined geographic areas are often rejected.
- Duration: The time limit must be only as short as needed to prevent harm to the employer.
Key Takeaways
Statutory bans on the use of a non-compete covenant, and existing common law limitations, have made it increasingly difficult to protect a business through the use of a restrictive covenant. Fortunately, it’s not impossible, and a well-drafted, restrictive covenant, compliant with the common law, can still play an important role in protecting an employer’s interests, across Canada.
That said, employers subject to Ontario and federal employment legislation should revisit any non-compete covenant currently in force. If it could be grand-fathered (Ontario), it must still comply with the common law. If it will be void one year after the federal ban takes effect, consider alternatives such as the use of a well-drafted non-solicit and/or non-disclosure covenant.
For more information or assistance, contact your Sherrard Kuzz LLP lawyer, or info@sherrardkuzz.com.
Monica Gill is a lawyer with Sherrard Kuzz LLP, one of Canada’s leading employment and labour law firms, representing employers. Monica can be reached at 416.603.0700 (Main), 416.420.0738 (24 Hour) or by visiting www.sherrardkuzz.com.
The information contained in this article is provided for general information purposes only and does not constitute legal or other professional advice, nor does accessing this information create a lawyer-client relationship. This article is current as of August 2026 and applies only to Ontario, Canada, or such other laws of Canada as expressly indicated. Information about the law is checked for legal accuracy as at the date the presentation/article is prepared but may become outdated as laws or policies change. For clarification or for legal or other professional assistance please contact Sherrard Kuzz LLP.
[1] Bill C-31, Budget 2025 Implementation Act, No. 2 is currently before the Standing Committee on Finance
