Non-compete agreements: Legal concerns for Canadian leaders

Is the ban on solicitations hampering an already tight skills shortage?

Non-compete agreements: Legal concerns for Canadian leaders

The advent of the Working for Workers Act has sent shockwaves through Ontario workplaces, with many HR leaders concerned about how best to enforce these new policy guidelines. Apart from the ‘right to disconnect’, the other main component of the Act is a ban on non-competes – something which may prove difficult considering the current skills shortage. HRD spoke with Mike MacLellan, partner at CCPartners in Brampton, Ontario, who revealed what this Act really means and how employers should approach the impending changes.

“Until recently non-compete agreements haven't been prohibited under the Employment Standards Act,” MacLellan told HRD. “Generally, they're not a good idea to put in most employment contracts because they're often unenforceable anyway – and there’s other things that an employer could do to protect their legitimate business interest. Employers now cannot require employees to enter into an agreement where, when they leave the company, they will not join a competing business. And it doesn't matter if the agreement has the geographic or temporal limitations on it. Subject to exceptions, you just cannot require employees to enter into a noncompetition agreement.”

Obviously, while they're your employee, they can't be engaged in business that competes with you. This change simply means that an employer cannot force a previous employee to refrain from entering into business with a company competitor.

“There are exceptions, however,” added MacLellan. “People with certain positions in an organization are not going to have the same protection. A president or anybody with a chief executive role is specifically described in the legislation as people for whom this prohibition does not apply.”

Right now, Canada – much like the rest of the world – is going through a massive skills shortage. Overnight digitization led to a global talent market – one which is candidate-led and cut-throat. As such, this ban on non-competes – while beneficial to employees – may spell trouble for employers in already struggling sectors. However, as for the practicality of non-competes, MacLellan doesn’t think much has really changed.

“In the common law, non-compete clauses are typically not enforceable anyway,” he told HRD. “The law does not want contracts that restrict people's abilities to do business or make a living. This is just taking that common law principle and making it part of the legislation. You can't require somebody to agree that they won't compete with you – but can make an employee agree that they won't solicit away your employees or clients when they leave. And you can still make employees agree that they won't disclose confidential business information when they leave. Naturally, when an employee is still under contract with a company, they’re duty bound not to compete or not to engage in any business that would be to the detriment of their employer. That’s why, in my view, this is just codifying what was already the law in most cases.”

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