Non-compete clauses – what you need to know

Updated January 22, 2024

Non-compete clauses are relatively common in Canada. After all, there is nothing more frustrating for HR than training an employee just to have them picked up by a competitor.

But do they really stand up in court? Are non-compete clauses enforceable?

In this article, we will explore the legality of non-compete clauses in Canada. We will also look at how to get around a non-compete clause and look at a recent ruling in Ontario.

Here is everything you need to know about non-compete clauses.

Non-compete clauses: an overview

Non-compete clauses (also known as restrictive covenants) are commonly found in employment contracts. Typically, non-compete clauses prevent an employee from working for a competitor for a certain period after leaving a workplace.

Simply put, non-compete clauses prohibit an employee from competing against their former employer.

Non-compete clauses are designed to prevent unfair competitive advantage for former employees. These unfair advantages often include using unique skills or business secrets learned at a workplace to give a competitor an advantage.

If an employer has legitimate concern that a former employee will try to compete against them, then implementing a non-compete clause would be a good idea. Grounds for legitimate concern in this instance might be if the former employee had intimate knowledge of the business.

Are non-compete clauses legal in Canada?

Canadian courts have been reluctant to enforce agreements that restrict an individual’s ability to pursue the job of their choice or earn a living.

Unless an employer can demonstrate otherwise, non-compete clauses are often unenforceable. In fact, most non-compete clauses challenged in the Canadian judicial system have been found to be unenforceable.

In Ontario, employers are no longer permitted to issue non-compete clauses to their employees. As of Dec. 2, 2021, Ontario became the first Canadian province to implement this ban.

How do you get around a non-compete clause?

If you are considering entering a non-compete clause into an agreement, it is important to seek legal advice first. This will help to ensure whether the agreement is valid and enforceable.

Prior to issuing, or signing, an agreement containing a non-compete clause, the employer and employee must each ensure the terms are understood.

In some cases, you may be able to negotiate the terms of the agreement. In other instances, the non-compete clause may be avoided altogether.

Let’s look at some tips to getting around a non-compete clause:

1. Speak with a lawyer

If an employee has been asked to sign a non-compete agreement, or is the subject of one, they should speak to a lawyer to understand their rights and obligations. A lawyer can help the employee negotiate the terms of the agreement. They may also determine whether the agreement is enforceable.

2. Consider the scope of the non-compete clause

Non-compete clauses vary in scope. They can be narrowly or broadly written. When considering whether to sign off on a non-compete clause, the employee should pay close attention to certain factors. These include duration of the agreement, geographic scope, and the type of activities restricted in it.

3. Limit the scope

If asked to sign a non-compete agreement, the employee might be able to negotiate to limit the scope of the agreement's terms. For instance, the employee might want to modify the duration of the agreement or the geographic scope.

4. Exclude certain activities from the non-compete clause

The employee can also request to exclude certain activities from the agreement when negotiating the terms of a non-compete clause. Employees can, for instance, request to exclude certain types of services or customers from the agreement.

5. Negotiate a severance package

In exchange for signing an agreement with a non-compete clause, the employee might be able to negotiate a severance package. The severance package may include a bonus, other benefits, or a cash payment.

6. Simply don’t sign the agreement if unclear

If an employee disagrees with the agreement or doesn’t understand it, they can choose not to sign it. If there are questions surrounding the agreement, the employee should ask the employer to further explain it. To reiterate: before signing the agreement, the employee should seek the advice of a lawyer.

7. Don’t sign the agreement if pushed or rushed

If the employee is pushed to sign the agreement before they understand it, they should not sign it. Again—and this is something to always keep in mind—if the employee has questions, they should ask the employer for clarification or ask a lawyer for advice.

8. Avoid signing if certain requests aren’t met

An employee should avoid signing a non-compete agreement if the employer refuses to make any requested changes.

Is a non-compete cause enforceable in BC?

Non-compete clauses limit someone’s ability and freedom to make a living. For this reason, non-compete clauses are difficult to enforce in BC (and elsewhere) and are scrutinized by Canadian courts.

Non-compete clauses are enforceable in BC only if/when they are reasonable between the parties and with reference to the public interest. A well drafted non-compete clause has a better chance of being enforced.

When drafting a non-compete clause, keep the following factors in mind:

• Clear, unambiguous language: confusion around key aspects of a non-compete clause are higher if unclear, ambiguous language is used. These key aspects include geographical limits, prohibited activity and period, among others. That confusion also increases the likelihood the agreement will be interpreted in favour of the former employee and, ultimately, deemed unenforceable.
• Clearly listed prohibited activities: the non-compete clause should clearly state what exactly the former employee cannot do after their employment ends.
• Set reasonable geographical boundaries: the geographical limit in the non-compete clause must be reasonable and realistic. The employer cannot prevent a former employee from working in the entire country, for instance. This is true, in most cases, with entire cities as well.
• Limit the duration of the restriction: one year is commonly used as the duration of restriction in a non-compete clause. However, that is highly contextual. It depends on industry norms and other factors.

Can an employer stop you from working for a competitor in Canada?

No, in most cases, an employer cannot stop you from working for a competitor in Canada. As we have seen, whether a non-compete clause is enforceable (as in BC) or is banned outright (as in Ontario) is dependent on a few factors.

When determining whether an employer can stop you from working for a competitor, you must consider a few factors. These include whether you quit or were fired for a serious reason or if you were fired without a serious reason.

If you were fired or quit for a serious reason, you will likely have to respect the terms of a valid non-compete clause. Your agreement with your former employer will outline what you can and cannot do.

If you were fired without a serious reason, your former employer cannot force you to respect it. This is true even if your non-compete agreement is valid.

You can go to work for a competitor but you must still act reasonably and fairly, remaining loyal to your former employer. For instance, if you were fired due to operating costs, your employer cannot prevent you from working for a competitor. 

Non-compete clauses: language matters

When drafting non-compete clauses, language matters. What the former employee can and cannot do should be clearly outlined. This includes geographic boundaries, activities and duration. And even then, it may not be enforceable, depending on which province you are based in.

Understanding the legality of non-compete clauses, and how to draft a strong one, is critical.

To find out more about non-compete clauses in Canada, get in touch with one of the HR experts we highlight in our Top HR Leaders to Know section. 

Do you have experience with non-compete clauses in Canada? Let us know in the comment section below.