Understanding Non Competes in Ontario and How They Affect Employers and Employees

In Ontario, the use of a non compete clause in employment contracts has become a topic of increasing scrutiny, particularly with legislative changes and evolving workplace norms. Non compete agreements are designed to prevent employees from working for a competitor or starting a competing business for a specific period after leaving their current employer. For startups, mid-sized businesses, and established companies alike, understanding how non competes work and when they are enforceable is critical to keep your organization as secure as possible.

Employers often seek to protect proprietary information, client relationships, and market position through non compete agreements. However, these clauses must be carefully crafted to comply with Ontario law, which places strict limits on their enforceability. At the same time, employees must understand their rights and obligations when signing employment agreements that include restrictive covenants.

The legal foundation of non compete agreements in Ontario is primarily grounded in common law, although the Employment Standards Act (ESA) now also plays a role. A major shift occurred in October 2021, when Ontario amended the ESA to include new rules that generally prohibit employers from entering into non compete agreements with employees, with very limited exceptions. This legislative change has made it even more important for businesses to understand what types of restrictions are still allowed and how they must be structured.

In Ontario, non compete clauses are presumed to be unenforceable unless the employer can prove they are reasonable in scope, geography, and duration, and that they are necessary to protect legitimate business interests. This high standard exists because non competes limit an individual’s ability to earn a livelihood. Courts are especially wary of overly broad or vague agreements that appear to unfairly restrict a person’s ability to work.

That said, there are exceptions. The ESA still permits non compete agreements in certain situations, such as when the clause is part of the sale of a business and the seller becomes an employee of the buyer. In this case, the seller may agree not to compete with the purchaser for a reasonable time. Another exception involves executives or those in a “C-suite” leadership role, such as CEOs or COOs, where non competes may still be enforceable under narrow circumstances.

Employers who wish to protect their interests typically consider alternative legal tools that are more enforceable under Ontario law. A well-crafted non solicitation clause, for instance, prohibits former employees from approaching clients, customers, or staff after leaving the company. Confidentiality agreements are also commonly used to ensure that sensitive information remains protected. These options are more likely to hold up in court and still offer protection without placing a broad restriction on someone’s employment options.

The structure of a non compete agreement—if used—must include specific, clearly defined terms. These include:

- The geographical area covered by the agreement - The length of time the employee must refrain from competing - A precise definition of what activities are considered “competition” - The reason why the restriction is necessary to protect the business

Using a non compete agreement template can be helpful, but it’s essential to tailor the terms to the actual business environment and the employee’s role. Generic templates found online may not be compliant with Ontario law or reflect recent legislative changes, making them risky to rely on without proper legal review.

Key non compete agreement terms often vary by industry. For instance, a sales representative with access to a client list may face different restrictions than a software engineer working on proprietary code. The courts will consider the employee’s level of access to confidential information, the nature of the business, and the competitive landscape when determining whether a non compete is reasonable.

Another important consideration is timing. If a non compete is introduced after employment has already begun, it must be supported by new consideration—such as a raise, promotion, or bonus—otherwise, it may be deemed unenforceable. Courts have repeatedly ruled that simply continuing employment is not enough to make a post-hiring non compete valid.

Ontario businesses must also be mindful of how they present non compete clauses during the hiring process. Employees should be given ample time to review the agreement and, ideally, the opportunity to seek independent legal advice. Employers who present restrictive covenants at the last minute, or under pressure, may have difficulty enforcing them later.

Startups and growing companies often face a dilemma when considering non compete clauses. On one hand, they want to protect their innovative ideas and early market advantages; on the other hand, they need to attract top talent who may be turned off by overly restrictive agreements. A strategic solution is to focus on enforceable alternatives—such as non solicitation and IP protection—and build a workplace culture where loyalty is earned through transparency, collaboration, and strong leadership rather than fear of legal consequences.

Litigation involving non compete agreements can be complex and expensive. Employees may challenge the validity of a clause, especially if it prevents them from earning income in their field. Courts will scrutinize the terms closely and may strike down the entire clause if even one element is unreasonable. That’s why clarity and precision are critical when drafting these agreements.

For employers, seeking legal advice before implementing a non compete policy is essential. An experienced employment lawyer can evaluate the business’s risk profile, draft enforceable alternatives, and ensure compliance with current Ontario legislation. For employees, it’s equally important to understand what you’re agreeing to before signing any employment contract containing restrictive covenants.

Recent trends in Ontario show a clear move away from traditional non competes in favor of more narrowly defined protections. The emphasis is now on balance—protecting legitimate business interests without placing unfair burdens on departing employees. This approach encourages fair competition and labour mobility, which are key to a healthy economy and a thriving innovation ecosystem.

Employers who continue to rely on non compete clauses without reviewing them under the current law may find themselves exposed to legal challenges. A simple update to employment agreements, a shift in policy, or a move toward alternative protections could offer stronger, more sustainable outcomes.

Ultimately, whether you are an employer or an employee, non compete clauses should be approached with caution and knowledge. Understanding your rights and obligations under Ontario law is the first step toward creating a fair and effective employment relationship.

Let’s look at a few examples to understand how non compete clauses might be applied—or challenged—in Ontario.

Imagine a senior marketing manager at a Toronto-based tech company who leaves to join a competitor in the same market. If the employee had access to sensitive client data and signed a non compete restricting them from working for a competitor within the same city for six months, a court might consider this reasonable—particularly if they were in a leadership position. However, if the clause restricted the ...

In contrast, consider a junior graphic designer working remotely for a startup who is asked to sign a non compete that prevents them from working for any design firm in Canada for two years. This would likely be seen as excessive and unenforceable. The courts would likely determine that the clause goes beyond what’s necessary to protect the employer and unfairly limits the designer’s ability to find similar work.

Ontario courts emphasize that the “reasonableness” of a non compete is case-specific. That’s why using a generic non compete agreement template without tailoring it to your business needs or industry context is risky. Instead, business owners should consult legal professionals to develop clauses that protect their interests while respecting employee rights.

If you are considering using a non compete clause in Ontario, here are some legal tips: - Only use non compete agreements when absolutely necessary and when no other alternatives are sufficient - Clearly define the scope, time period, and geographic area- Avoid overly broad or ambiguous language - Provide employees with consideration and time to review the agreement- Use non solicitation and confidentiality agreements for broader protection - Regularly review and update your agreements to reflect changes in the law and your business

For employees, it’s essential to read the fine print before signing. If you’re unsure about the impact of a non compete, ask questions or seek legal advice. Signing a restrictive clause without understanding it can limit your options long after you leave a job.

To fully understand the current legal landscape around non compete clauses in Ontario, it helps to look at the broader historical and national context. Non competes have long been controversial across Canada due to their impact on labour mobility. Canadian courts have traditionally viewed restrictive covenants skeptically, balancing the rights of businesses to protect legitimate interests with the rights of individuals to work and earn a living. Ontario's recent legislative changes reflect a growing tr...

Across Canada, there are slight variations in how provinces treat non compete clauses. For example, while Ontario has codified restrictions through recent amendments to the Employment Standards Act, provinces like British Columbia and Alberta rely more heavily on case law to determine enforceability. However, the overarching trend is consistent—non compete clauses are rarely enforced unless they are tightly defined and supported by compelling justification.

Startups, in particular, are encouraged to consider enforceable alternatives rather than relying on traditional non competes. One powerful tool is the use of non disclosure agreements (NDAs), which prevent employees from sharing confidential information both during and after employment. NDAs are generally enforceable when properly drafted and are an excellent first line of defense for protecting proprietary technology, customer data, or business strategy.

Another alternative is a well-drafted non solicitation agreement, which can prevent a departing employee from reaching out to former clients or co-workers to solicit business or talent. These clauses are more likely to be upheld by Ontario courts, provided they are reasonable in scope and duration. For example, prohibiting solicitation for six to twelve months within a specific client list is generally seen as acceptable.

It is also worth noting how Ontario courts evaluate the reasonableness of a non compete clause. Judges look at several key factors: the geographic range (local, national, international), the time period (a few months versus several years), and the scope of prohibited activities. The narrower and more targeted the restriction, the more likely it is to be upheld. A clause that restricts an employee from working in a specific industry entirely, even in unrelated roles, is unlikely to survive judicial scrutiny.

In today's evolving work environment—where remote work, digital platforms, and global teams are common—it is even more important to ensure that any restrictions placed on employees are relevant and enforceable. Overly broad or outdated clauses can do more harm than good, leading to strained relationships and legal expenses.

Understanding these nuances allows employers to draft smarter contracts and gives employees the confidence to negotiate terms that are fair and transparent.

Juzkiw Law Firm offers practical legal advice for Ontario employers and professionals dealing with employment contracts, non competes, and workplace policies. Whether you’re drafting agreements from scratch or updating them to comply with new laws, we’re here to help you move forward with clarity and confidence.

To speak with our legal team, visit us at 4750 Yonge St, Unit 346, Toronto, ON M2N 0J6, or call 416-221-2221.