Post-employment non-competition agreements: recalibration in process

Canada’s approach towards restrictive covenants, particularly post-employment non-competition agreements, is rapidly transforming. Across the country, courts continue to scrutinize non-competition agreements rigorously, with Ontario imposing a legislative prohibition within the employment context, subject to specific exceptions.  

Federal competition law reform has introduced criminal liability for certain restraints while also expanding the scope of civil remedies and related mechanisms. In the 2025 Federal Budget released on Nov. 4, 2025, the Government of Canada announced plans to amend the Canada Labour Code to restrict non-competition provisions within employment contracts for federally regulated employers, including those in the banking, telecommunications, and transportation industries. 

The trend is clear: except in the sale of a business context and certain narrowly defined exceptions, non-competition agreements are increasingly disfavoured and should be generally avoided. Non-solicitation clauses, confidentiality provisions, and reliance on common law duties that survive the termination of the employment relationship should be the preferred tools. 

Legislative prohibition in Ontario 

Ontario is the only province to statutorily prohibit post-employment non-competition agreements for most employees. Since Oct. 25, 2021, the Employment Standards Act, 2000 voids agreements restraining employees from competing after employment, regardless of duration or geography. There are two exceptions, however:  

• A seller of a business who becomes an employee of the purchaser following the sale may be bound to a non-competition agreement negotiated as part of the transaction. 

• Senior C-suite executives (e.g. president, chief executive officer, chief financial officer, chief administrative officer). 

Employers are increasingly resorting to the use of narrow non-solicitation and confidentiality provisions. Unsurprisingly, courts will continue to strike down restrictive covenant clauses that are ambiguous, lack demonstrable necessity, or exceed legitimate proprietary interests. As such, drafting precision remains critical as ambiguity will often be fatal. 

Common law outside Ontario - employment 

No other Canadian province has enacted a legislative ban on non-competition agreements. However, common law across Canada continues to disfavour them and will only uphold them where employers can establish:  

• A legitimate proprietary interest. 

• Necessity (where a non-solicitation provision would be inadequate).  

• Reasonableness in duration, scope, and subject matter.  

The reality is that provisions restricting competition broadly, covering unnecessarily large territories, or extending beyond the protection of customer goodwill or trade secrets, will generally fail. 

Provinces such as British Columbia, Alberta, and Quebec apply these principles with some variances, and focus on the fact that necessity must be shown rather than assumed. In the sale of a business context, and where justified, courts have upheld covenants given the business footprint and consideration at issue. 

In Quebec, courts show heightened tolerance for non-competition agreements tied to goodwill sales, provided the clause is restricted by activity, time, and territory. Such agreements, however, will often fail where the employee is terminated without cause.  

Assessing the reasonableness of the restraint remains fact-specific. For example, a six-month, role-specific non-solicitation provision focused on customers the employee formally served is far more enforceable than a general two-year prohibition on working “for any competitor.” In fact, employers should strive to get it right the first time as courts will strike down excessive clauses rather than rewrite them. 

Commercial transactions and the sale of a business 

The sale of a business differs from employment agreements. In the commercial context, courts presume that the purchaser’s acquisition of goodwill requires protection. In addition, where the parties to the transaction are sophisticated and negotiate with the assistance of legal representation, courts will uphold non-competition and non-solicitation agreements that adequately protect the purchased goodwill. 

Canada-wide geographic restrictions may be enforceable in circumstances where the absence of such restrictions would hinder or render the sale of the business impossible. 

However, even within the commercial context, calibration matters. An overreach in scope, duration or activity will often invalidate the provision in issue. Again, this highlights the critical importance of drafting precision, particularly regarding severability clauses in commercial transaction agreements.  

Federal competition law 

The 2022 amendments to the federal Competition Act introduced criminal offenses for wage-fixing and “non-poaching” agreements between unaffiliated employers. Since June 23, 2023, such agreements carry uncapped fines and up to 14 years of imprisonment. The Competition Bureau has signaled broad enforcement while upholding reasonable, time-limited employee non-solicitation covenants directly related to legitimate agreements (e.g. mergers, acquisitions and joint ventures). 

Moreover, private parties harmed by restrictive covenants, such as employees, now have the ability to commence legal proceedings for monetary relief through traditional civil actions or administrative proceedings before the Competition Tribunal. 

As such, there are two important implications within the federal competition law context:  

• Two-way “non-poaching” arrangements may attract criminal liability. 

• Civil exposure for overbroad non-competition agreements is rising. 

Best practices for non-competition agreements 

As mentioned above, recent trends have reinforced the importance of well-drafted provisions and the following best practices: 

• Non-competition agreements should be the last resort outside the sale of a business and Ontario's carve-out for certain executives. When used, non-competition agreements should be narrowly tailored to the employee's role, geographically anchored to the employer's market, and time-limited. Moreover, employers must show why a non-solicitation and confidentiality provision cannot adequately protect their interests. 

• Non-solicitation is the preferred post-employment protection. Courts will favour clauses prohibiting active solicitation of customers with whom the employee had material dealings within a specific period. The non-solicitation of employees is common but must avoid Competition Act violations, particularly with respect to agreements between unaffiliated employers. 

• Confidentiality, intellectual property assignments, and operational safeguards are critical. Courts will enjoin misuse of trade secrets even absent non-competition agreements. As such, employers should continue to invest in access controls, information governance, data loss mitigation, and prevention and training to reduce exposure. Employers should also review and assess evidence preservation measures to facilitate and support injunctive proceedings where (and if) necessary.   

Provincial and federal trends confirm a narrower, evidence-based approach towards post-employment restrictive covenants. 

In Ontario, most non-competition agreements are statutorily prohibited with limited exceptions. Elsewhere, the common law will enforce non-competition agreements only where an employer can establish a legitimate proprietary interest, necessity and reasonableness in scope.  

Commercial non-competition agreements tied to goodwill sales continue to be upheld if reasonably limited. 

At the federal level, restraints within the labour market face heightened scrutiny. Non-poaching agreements are criminally prohibited and there are now expanded civil remedies to facilitate challenges to overbroad restraints. 

The recalibrated landscape favours well-drafted non-solicitation provisions, precise confidentiality and intellectual property protections and established operational safeguards instead of overboard restraints and non-competition agreements.  

Adopting this approach and best practices may help employers withstand future judicial scrutiny. 

Martin J. Thompson is a partner at McMillan LLP in Toronto, specializing in employment and labour relations.