Ontario Government to Introduce Legislation to Ban Non-Competition Clauses for Employees

The Ontario government will introduce proposed legislation on October 25, 2021, that would ban the practice of imposing non-competition clauses on employees, a growing trend that is often used to intimidate workers.

The proposed changes, which would amend the Employment Standards Act, 2000, would still allow companies to forbid departing employees from using intellectual property or confidential information, and non-competition clauses would still be allowed in some cases where a business is sold. The changes would also still allow for agreements that block ex-employees from soliciting their former employer’s clients, which are also common and more often upheld in court.

The move, which would be the first ban in Canada, is primarily intended to make Ontario more attractive to talented technology workers, who often face these clauses in employment contracts, but it is also necessary to block the increasing introduction of non-competition clauses, even for low-wage workers.

A non-competition clause typically attempts to prohibit an employee from working for a competitor after leaving their job – sometimes for years.

Given that the non-competition will be banned by the Employment Standards Act, 2000, the enforceability of other various clauses set out in an employment contract will certainly be at issue in view of these changes.

Typically, a contract cannot provide for an entitlement that falls below the minimum standards set out in the Act. If it does, the entire clause is no longer enforceable. These issues are fairly common amongst termination provisions that address a departing employee’s entitlements upon termination. It will be of great interest as to how the courts handle employment contracts that contain non-competition clauses but otherwise enforceable termination provisions. Will the inclusion of a non-competition clause cause an otherwise enforceable termination provision to longer be enforceable? Time will tell.