Non-Competition Clauses: When Are They Enforceable?

Non-competition clauses, that is, agreements that restrict where you can work after leaving your job, are common in employment contracts. But just because you signed one doesn’t mean it’s enforceable.

Ontario’s Working for Workers Act, which came into force in 2022, significantly changed the landscape for non-competes.

The Act prohibits non-competition agreements in employment contracts for most employees. The only exceptions are sale of business situations where an owner sells their business and agrees not to compete or executive employees (a narrowly defined category).

This means most non-competes signed after October 25, 2021 are void and unenforceable regardless of how reasonable they might be. The Act applies even if your employment contract was signed before that date.

So what about the small group of workers who may be impacted by non-competes – when do courts enforce these terms?

Ontario courts scrutinize non-compete clauses carefully and will only enforce them in limited circumstances. Courts begin with a presumption that non-competition clauses are unenforceable restraints on trade. The burden is on the employer to prove the clause is reasonable and necessary.

Why? 

Because these clauses restrict your ability to earn a living in your chosen field. 

Courts recognize that people need to work, and overly broad restrictions harm both employees and the public interest in competition.

This means employers must clear a high bar to enforce non-competes. Simply including one in a contract doesn’t make it valid.

For a non-competition clause to be enforceable, the employer must prove it’s reasonable in three respects:

Does the employer have a legitimate proprietary interest to protect? 

Trade secrets, confidential information, or customer relationships that would be damaged if you worked for a competitor might qualify. General skills and knowledge you acquired on the job likely do not.

Is the restriction reasonable in scope? 

This includes geographic area, duration, and the scope of prohibited activities. A one-year restriction in Toronto might be reasonable; a five-year worldwide ban probably isn’t.

Is it reasonable from a public interest perspective? 

Does the clause unduly restrict competition or prevent you from earning a living? 

Even if it protects the employer’s interests, courts can strike it down if it’s harmful to the public.

Employers can’t use non-competes just to prevent competition. They must have a genuine business interest at stake.

Legitimate interests include trade secrets and confidential business information that you could use at a competitor, highly specialized customer relationships where clients might follow you, or unique business methods or processes that took significant investment to develop.

What doesn’t qualify: general industry knowledge, skills you developed through training and experience, or simply wanting to prevent competition. The employer must show specific harm would result from you working for a competitor.

A non-compete that says “you can’t work anywhere in Canada for any competitor” is almost certainly too broad to be enforceable.

Courts look at where you actually worked, where the employer actually operates, and what geographic restriction is truly necessary to protect the employer’s interests.

Duration matters too. A one-year restriction might be reasonable. Three to five years is suspect. Anything beyond that is almost certainly unenforceable except in the most exceptional circumstances.

The clause must clearly define what you can’t do. “You cannot work for any competitor” is vague and likely unenforceable.

Better clauses specify the industry, the type of work, and the specific competitive activities prohibited. But even then, if the restriction is broader than necessary to protect the employer’s interests, courts will strike it down.

Non-solicitation clauses restrict you from soliciting the employer’s customers or employees after you leave. These are treated more favorably by courts and remain enforceable even under the new legislation.

A non-solicitation clause says you can work for a competitor, but you can’t actively poach clients or recruit staff. These are much more likely to be enforced than outright non-competes because they’re less restrictive.

At Pinto Shekib LLP, we advise both employees facing non-compete restrictions and employers seeking to enforce them. We can review your non-compete clause, assess its enforceability under current law, and help you understand your options.

Contact us at 416.901.9984 or info@pintoshekib.ca for a confidential consultation.