Are Non-Compete Clauses Enforceable in Ontario? Non-Competes and Non-Solicits

For years, non-competition clauses were a standard feature of Ontario employment contracts. That changed when the Ontario legislature passed the Working for Workers Act, 2021, which amended the Employment Standards Act, 2000 to prohibit employers from entering into non-compete agreements with employees. Ontario became one of the first jurisdictions in Canada to legislate a broad ban of this kind.

A non-compete clause is a promise not to work for a competitor, start a competing business, or otherwise engage in competitive activity for a period after leaving. Under the amended Employment Standards Act, an employment non-compete that falls within the ban is void — not merely unenforceable in part, but of no effect at all. An employer generally cannot save it by arguing that it was reasonable.

The ban applies going forward to agreements entered into after the law took effect. It does not automatically erase every non-compete signed before that point, and it does not touch the separate world of commercial contracts. Those distinctions matter enormously, and they are where most of the confusion lives.

To understand what survives the ban, it helps to see that Ontario law treats restrictive covenants very differently depending on the relationship they arise in.

In the employment context, courts have long viewed non-competes with suspicion. The reasoning is about bargaining power: an employee rarely negotiates the terms of their contract as an equal, and a broad restriction can leave a person unable to earn a living in their own field. Even before the statutory ban, Ontario and Canadian courts routinely struck down employment non-competes as unreasonable restraints of trade, and they generally refused to rewrite an overly broad clause to make it enforceable.

In the commercial context — most importantly, the sale of a business — the analysis is different. When one party sells its business to another, the buyer is paying for goodwill, and both sides typically have legal advice and comparable leverage. Courts give far more weight to the parties' freedom to contract and are more willing to enforce a restriction that protects what the buyer paid for. The employment ban does not apply to that commercial setting at all.

The Employment Standards Act ban is broad, but it carries two important carve-outs.

The first is the sale-of-business exception. Where a person sells a business (or part of it) and, as part of the sale, becomes an employee of the purchaser, a non-compete agreed to in that context can still be valid. The logic mirrors the commercial rationale: the restriction is really part of the purchase of goodwill, not an ordinary employment term imposed on a subordinate.

The second is the executive exception. The Act permits non-competes with employees who hold defined senior roles — the kind of C-suite positions such as chief executive officer, president, and chief financial officer, along with similar top-level officers. The definition is specific, and a job title alone does not settle it; what matters is whether the role genuinely falls within the statutory category.

Outside these two exceptions, an employment non-compete in Ontario will generally be void regardless of how carefully it is drafted. This is why simply relabelling a clause or narrowing its wording usually does not rescue it — the prohibition operates on the type of agreement, not on how reasonable it looks.

A crucial point that is often missed: the Working for Workers Act banned non-competes, not non-solicitation clauses. Non-solicits were left untouched and remain generally enforceable in Ontario when they are reasonable.

A non-solicitation clause is narrower than a non-compete. Instead of barring someone from competing at all, it restricts specific conduct — typically soliciting the business's clients or customers, or recruiting its employees, for a defined period. Because it targets a real, protectable interest without preventing a person from working in their field, it is far easier to justify.

For many employers, a well-drafted non-solicitation clause achieves most of what they actually needed a non-compete for: protecting client relationships and stopping a departing employee from poaching the team. The clause still has to be reasonable — it should be clear about who cannot be solicited, and for how long — and vague, overreaching non-solicits can still be struck down. But as a category, non-solicitation remains a live and enforceable tool where non-competition, in employment, generally is not.

Non-competes tied to the sale of a business remain valid in Ontario, provided they are reasonable in scope, duration, and geography. This is the context in which restrictive covenants are most likely to be enforced.

When a buyer acquires a business, the seller's promise not to immediately reopen next door and take back the customer base is central to the deal. Courts recognize that a buyer is entitled to protect the goodwill it paid for. A restriction that keeps the seller out of the same line of business, within the area the business actually served, for a period reasonably connected to how long the goodwill needs to transfer, will usually be upheld.

The freedom the parties have here is not unlimited. A sale-of-business non-compete that reaches far beyond the geography the business operated in, lasts far longer than necessary, or bars activities the business never engaged in can still be found unreasonable and unenforceable. Reasonableness is judged against what is needed to protect the buyer's legitimate interest — not against what maximally advantages the buyer.

Where a restrictive covenant is still available — a non-solicit, a sale-of-business non-compete, or an executive non-compete — enforceability turns on reasonableness. Ontario courts weigh several factors:

• A legitimate interest to protect. Confidential information, trade secrets, and established customer goodwill count. A general wish to avoid competition does not.
• Geographic scope. The area covered should reflect where the business actually operates or where the relationships exist, not the whole province or country by default.
• Duration. The restriction should last only as long as needed to protect the interest — longer periods face more scrutiny.
• Clarity. Ambiguity is often fatal. If a court cannot tell exactly what conduct is prohibited, it may refuse to enforce the clause rather than guess at what the parties meant.

Ontario courts generally will not rewrite an overbroad restriction into a narrower, enforceable one. An unreasonable clause tends to fail entirely rather than be trimmed to fit. That makes precise, context-specific drafting the difference between a restriction that holds and one that collapses at the moment it is needed most.

The practical landscape in Ontario now looks like this: employment non-competes are off the table for most workers, two narrow exceptions survive, non-solicitation clauses remain a dependable tool, and sale-of-business non-competes are enforceable when reasonably scoped.

For employers, the takeaway is to stop relying on employment non-competes and instead protect the business through enforceable means — carefully drafted non-solicitation and confidentiality provisions, clear intellectual property assignment, and strong internal controls over sensitive information. For anyone buying or selling a business, the non-compete is still a legitimate and important part of protecting the transaction, and it deserves the same drafting care as the rest of the deal.

Because the enforceable path depends so heavily on the context and the precise wording, this is an area where getting the drafting right matters. The team at Lamba Law helps GTA employers and business owners structure restrictions that fit within Ontario's current rules — protecting client relationships, confidential information, and transaction goodwill without leaning on clauses that no longer hold up.

This article is general legal information, not legal advice. How these rules apply depends on the specific facts of your situation and the exact language of your agreements.