Bill 27, Working for Workers Act, has recently amended some employment legislation in Ontario. One of the key amendments includes a new prohibition against the use of non-compete clauses or agreements for employees under the Employment Standards Act. This prohibition is effective retroactively to October 25^th, 2021. Non-complete agreements that have been entered into before October 25^th, 2021 will likely be enforced according to recent case law (Parekh et al v. Schecter et al, 2022 ONSC 302,). That being said, it is important to be clear that not all past agreements are considered void now because of this new amendment to the ESA but moving forward employers must be mindful to not include them in new employment agreements.

For the purposes of this change, a non-complete agreement is defined as “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 between the employee and the employer ends”. For greater clarity, a non-complete clause in an employment agreement would fall under this definition and therefore be prohibited.

The intention behind not allowing the use of non-complete clauses and agreements is to help employees to continue to advance their careers and skills without being limited to one organization in their area. Courts have been typically reluctant to enforce non-competes in the past because of how limiting they are and the difficulties it can cause for employees looking for other opportunities. Non-competes have been seen as somewhat manipulative in that they provide the employer with the upper-hand. This amendment to the Employment Standards Act is intended to remove the barrier to “trade” in the employment context and allow for more opportunity for employees to use the skills they have acquired to seek better or more fitting opportunities more freely.

There are however exceptions that do allow employers to enter into non-compete agreements with employees. Firstly, an employer may enter into a non-compete agreement with executives. Executives are defined as “any person who holds the office of chief executive officer, president, chief administrative officer, chief legal officer, chief human resources officer or chief corporate development officer, or holds any other chief executive position”. The second exemption occurs is there is a sale of a business or part of a business and there is an agreement made between the seller and the purchaser that states that the seller cannot engage in any business, work, occupation, profession, project or activity that would be in direct completion with the purchaser's new business that they bought from the seller, and immediately following the sale, the seller becomes an employee of the purchaser. This is meant to ensure that employers “trade secrets” and specific skills are protected because the employees mentioned in these exemptions are most likely those who if they were to bring their former employer's methods or specific skills to a new competitor's operation then it may indeed harm the previous employer.

This change appears to be a welcome addition to the Employment Standards Act and with time the practical effects will become more evident. If you are an employer who has previously used non-complete agreements or clauses, it would be wise to have those employment contracts reviewed and updated by an employment lawyer. If you would like assistance in this area, please contact our team of lawyer at 705-268-6492.