Non-compete clauses in Ontario: the ban, the two exceptions, and what actually works instead

The ban: what ESA s.67.2 actually says

The Working for Workers Act, 2021 (Bill 27) added Part XV.1 to the Employment Standards Act, 2000. The operative provision, section 67.2(1)–(3), is blunt: no employer shall enter into an employment contract or other agreement with an employee that is, or that includes, a non-compete agreement — and any non-compete entered into in contravention of that prohibition is void.

The statutory definition is deliberately broad. A 'non-compete agreement' means an agreement, or any part of an agreement, between an employer and an employee that prohibits the employee from engaging in any business, work, occupation, profession, project, or other activity that is in competition with the employer's business after the employment relationship ends. Rewording it as a 'non-competition undertaking' or burying it inside a 'protective covenants' section doesn't change the substance.

Two dates matter and they are not the same. Bill 27 received Royal Assent on December 2, 2021 — but the non-compete prohibition is deemed to have come into force on October 25, 2021, the day the legislation was introduced. In practice, the operative date for your contract is the October one: anything entered into on or after October 25, 2021 is caught by the ban.

Who the ban covers — and what it doesn't reach

The prohibition binds employers entering into agreements with employees — the people covered by the ESA. Three boundary questions come up constantly:

• Agreements before October 25, 2021: not void by statute. The Ministry of Labour's position is that the ban is not retroactive, and the Ontario Superior Court confirmed it in Parekh et al v. Schecter et al (2022 ONSC 302). Older clauses live or die under the common law, where a restraint of trade is presumptively unenforceable and the employer must prove it goes no further than reasonably necessary to protect a legitimate interest
• Independent contractors: outside the ESA ban, since the prohibition applies to employment contracts. But that is not a free pass — courts assess contractor restraints under contract and common-law principles, and overbroad restrictions on a contractor's ability to earn a living face the same judicial skepticism that sank so many employee clauses
• Renewals and re-signings: an employer cannot resurrect a void clause by having a long-serving employee 're-sign' their contract or acknowledge an updated handbook. A new agreement entered into after the cutoff date is caught by the ban regardless of how long the employment relationship has run

Bottom line: if you're an Ontario employee and your contract was signed or renewed on or after October 25, 2021, a non-compete in it is almost certainly dead law — unless one of the two exceptions applies.

Exception 1: the executive exemption

Section 67.2(4) carves out employees who are executives. The ESA defines 'executive' as any person holding 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, chief corporate development officer — or any other chief executive position.

The list is deliberately senior and deliberately narrow. A vice-president of sales, a director of engineering, a senior manager with a big book of business, or anyone with an inflated title does not qualify. The exemption is construed narrowly, and adjudicators look at substance over titles: promoting someone to 'Chief Growth Officer' the week before the non-compete is signed won't survive scrutiny.

And here is the point employers miss most often: the exception only lifts the statutory ban. It does not make the clause automatically enforceable. A CEO's non-compete must still survive the common-law reasonableness test — the employer must show a legitimate proprietary interest worth protecting (genuine trade secrets, the client relationships the executive personally built), that a non-solicitation clause would not have sufficed, and that the geographic scope, duration, and restricted activities go no further than reasonably necessary. An overbroad clause dies even for a genuine executive.

Exception 2: sale (or lease) of a business

The second exception protects the value of a business purchase. The ban does not apply where all of the following occur: there is a sale or lease of a business (or part of one) that is operated as a sole proprietorship or a partnership; immediately following the sale, the seller becomes an employee of the purchaser; and as part of the sale, the purchaser and seller enter into an agreement prohibiting the seller from competing with the purchaser's business afterward.

The logic is straightforward: a buyer who pays for a business's goodwill and clientele shouldn't watch the seller open a rival shop across the street the next day. But the exception is read narrowly and every condition must be met. A share sale of a corporation where the founder stays on as an employee does not obviously fit the sole-proprietorship/partnership framing; an asset sale where the seller walks away with no employment relationship fails the 'immediately becomes an employee' test. And it is not a back door for ordinary employee non-competes — structuring a hire as a sham 'sale' to smuggle in a restriction is exactly the kind of arrangement a court will see through.

As with the executive exception, escaping the statutory ban is only step one: the clause must still be reasonable in scope, geography, and duration at common law.

What the ban does not touch: non-solicitation and confidentiality

The Ministry of Labour's position — repeated by employment lawyers across the province — is that section 67.2 prohibits non-compete agreements only. The surrounding toolkit remains available:

• Non-solicitation of clients: barring a former employee from actively soliciting clients they personally served, for a defined period — commonly 6 to 12 months, rarely beyond 24 months even for senior roles. The clause must be limited to clients the departing employee actually dealt with, not the employer's entire book of business
• Non-solicitation of employees: barring the poaching of colleagues, which protects team stability without restricting anyone's right to work
• Confidentiality / NDA: protecting genuine trade secrets and confidential information during and after employment — enforceable everywhere when properly scoped to information that is actually secret
• Intellectual property assignment: making clear the company owns work product created on the job
• Notice and garden-leave provisions: keeping a departing key employee on payroll — and out of the market — during a defined notice period instead of restricting them after it

The same caution applies to each: courts will not blue-pencil an overbroad non-solicitation clause into something reasonable. If the language goes further than necessary, the entire clause is struck. Precision — named clients, a real time limit, activities tied to the employee's actual role — is what makes these hold up.

The separate-agreement rule

One structural lesson deserves its own section, because it keeps costing employers their enforceable clauses. If a contract contains both a void non-compete and a perfectly good non-solicitation clause in the same 'restrictive covenants' section, a court wrestling with the void clause is at least reading the whole section with a skeptical eye — and sloppy drafting can blur the line between the two restrictions so badly that neither survives.

The safer structure: put the non-compete (in the rare case it's permitted — an executive or a sale of business) in a standalone agreement, and put your non-solicitation, confidentiality, and IP provisions in a separate document. That way, if the non-compete is struck down, it falls alone. Employers that keep copying one omnibus 'protective covenants' template from 2019 into 2026 contracts are asking for the entire section to be litigated at once.

Employer playbook: protecting your business without a non-compete

Ontario employers should treat the ban as settled law, not a drafting puzzle to route around. The practical compliance program looks like this:

• Audit every employment contract and offer-letter template now: strip non-competes from anything used for non-executive employees, including renewals and promotions signed after October 25, 2021 — a void clause plus an aggressive enforcement letter is how companies end up paying the other side's legal costs
• Replace with the narrow alternative that fits the actual risk: client non-solicitation for sales and account roles, employee non-solicitation for team leads, confidentiality for anyone who touches trade secrets — each with defined time, territory, and activity limits tied to the role
• Use fresh consideration for mid-employment changes: a new restriction imposed on an existing employee needs something of value beyond continued employment — a genuine raise, bonus, or promotion — to be enforceable
• Document legitimate interests while the employee is still with you: what secrets they accessed, which client relationships they personally built. That record is the evidence a court wants if you ever need to enforce a non-solicitation clause
• Don't use void clauses as deterrence: threatening to enforce a clause you know the statute voids can backfire — in negotiation, at the Board, and in front of a judge

And remember the ESA's reprisal protections: the Act prohibits punishing employees for exercising their rights. An employer has no lawful basis to demand a non-compete from a non-executive employee — retaliating against someone who refuses to sign one compounds the problem.

Employee playbook: asked to sign, or threatened with one

If you're an Ontario employee, work through this checklist before signing anything with post-employment restrictions — or before assuming a threat letter has teeth:

• Identify which restriction you're actually facing: non-compete, non-solicitation, confidentiality, or a bundle — the ban covers only the first, and the others face different tests
• Check the date and your role: a non-compete in a contract entered into on or after October 25, 2021 is void unless you're a genuine C-suite executive or selling your business to the employer
• For non-solicitation and confidentiality clauses, test the scope: are the time limit, client list, and restricted activities tied to your actual role, or is the clause a blanket ban on working in your field?
• Check for fresh consideration: a restriction added mid-employment — in a promotion package or an 'updated policies' acknowledgement — generally needs a genuine raise, bonus, or promotion to bind you
• Never refuse or breach on a hunch: if an employer sends a cease-and-desist or threatens an injunction, have an employment lawyer review the actual wording before you respond, resign, or turn down the competing offer — because the exceptions, the timing, and the fine print all matter

One more thing worth knowing: if your non-compete is void, the rest of your contract survives — termination provisions, compensation, and benefits are unaffected. The void clause falls alone.