With its 2021 Working for Workers Act, Bill 27, Ontario banned non-compete agreements for non-executives, except in limited cases. And that law, which has received Royal assent, is effective as of October 25, 2021.

Here are the relevant provisions (at least for our purposes):

What the New Law Says

Prohibition

67.2  (1)  No employer shall enter into an employment contract or other agreement with an employee that is, or that includes, a non-compete agreement.

(2)  For greater certainty, subsection 5 (1) applies and if an employer contravenes subsection (1), the non-compete agreement is void.

Exception — sale, etc., of business

(3)  If there is a sale of a business or a part of a business and, as a part of the sale, the purchaser and seller enter into an agreement that prohibits the seller from engaging in any business, work, occupation, profession, project or other activity that is in competition with the purchaser’s business after the sale and, immediately following the sale, the seller becomes an employee of the purchaser, subsection (1) does not apply with respect to that agreement.

Exception — executives

(4)  Subsection (1) does not apply with respect to an employee who is an executive.

Definitions

(5)  In this section,

“executive” means any person who holds the office of chief executive officer, president, chief administrative officer, chief operating officer, chief financial officer, chief information officer, chief legal officer, chief human resources officer or chief corporate development officer, or holds any other chief executive position; (“cadre supérieur”)

“sale” includes a lease. (“vente”)

Practical Takeaways

  • First, the law is, perhaps, almost as interesting for what it doesn't say, as for what it actually does say. In particular, there does not appear to be any ban on non-solicitation provisions, which would be a nod to an employer's legitimate business interest in protecting its good will.
  • Second, this law is far more aggressive in curtailing non-competes than most jurisdictions in the United States (other than say, California), because instead of limiting the ban on non-compete clauses to low-wage employees, it outlaws non-competes for anyone other than executives, which are strictly limited to a small pool of individuals.
  • Third, the law's additional carve-out in connection with the sale of a business is consistent with the law in New York (and many other U.S. jurisdictions) that permits non-competes in these circumstances, because it recognizes that implicit in the purchase price of the business is an agreement that the seller won't turn around and compete against the buyer, and thereby deprive the buyer of the specific benefit of the bargain.
Jonathan Cooper
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Non-Compete, Trade Secret and School Negligence Lawyer
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