Non-Compete Agreements in Ontario: What Employers and Employees Need to Know (2026)

The 2021 Non-Compete Ban: What Changed

Effective October 25, 2021, the Working for Workers Act, 2021 amended Ontario's Employment Standards Act, 2000 (ESA) to prohibit employers from entering into non-compete agreements with employees. Section 67.2(1) of the ESA now provides:

“No employer shall enter into an employment contract or other agreement with an employee that is, or that includes, a non-compete agreement.”

Employment Standards Act, 2000, s. 67.2(1)

The legislation defines a non-compete agreement as one 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.”

Exceptions to the Ban

The Working for Workers Act creates two exceptions where non-competes remain permissible:

1. Executives and senior management

The ban does not apply to employees who are “executives” — individuals who hold the highest level of authority in an organization or a division, such as a CEO, COO, CFO, or President. Courts are still working out exactly where the executive threshold lies, and Ontario employment lawyers should be cautious about relying on this exception for mid-level managers.

2. Business sale transactions

Non-competes remain valid when they are entered into “in connection with the sale of a business or part of a business” and the seller becomes an employee of the buyer. This is a common commercial scenario — buyers want to prevent sellers from immediately competing after the sale. The common law reasonableness test still applies.

Types of Restrictive Covenants in Ontario

Non-compete clause

Largely banned

Prohibits working for a competitor or starting a competing business for a set period in a defined area.

The Working for Workers Act bans these for most Ontario employees. Only valid for executives and in business sale transactions.

Non-solicitation of clients

Permitted if reasonable

Prohibits approaching the former employer's clients to do business after leaving.

Still permitted under common law. Must be reasonable in duration, scope, and geographic area. 6–12 months is typical.

Non-solicitation of employees

Permitted if reasonable

Prohibits recruiting the former employer's staff after departure.

Also assessed under common law. Duration beyond 12 months is rarely enforced. Must be clear and specific.

Confidentiality clause

Fully permitted

Prohibits disclosing trade secrets and confidential business information.

Implied into every employment relationship even without a contract. Express clauses can extend protection and specify remedies.

How Courts Assess Reasonableness

For restrictive covenants that survive the legislative ban (non-solicitation clauses, executive non-competes, and business sale non-competes), courts apply a common law reasonableness analysis. The leading Supreme Court case is Elsley v. J.G. Collins Insurance Agencies Ltd. [1978]. Key factors:

Duration

Courts rarely uphold restrictions beyond 12 months. 6 months is more defensible for non-solicitation.

Geographic scope

Restrictions limited to where the employee actually worked are more likely to be upheld than province-wide or national bans.

Scope of restricted activities

The clause must be no broader than necessary to protect a legitimate business interest. Vague terms are struck down.

Legitimate business interest

The employer must show a protectable interest: client relationships, confidential information, or specialized training.

Consideration

If signed after employment began, there must be fresh consideration — a promotion, bonus, or new benefits. Just continuing employment is not enough.

Blue-Pencilling vs. Striking the Clause

When an Ontario court finds a restrictive covenant unreasonable, it has two options:

Blue-pencilling

Courts can remove words or phrases to make the restriction reasonable — but only if they can do so without rewriting the agreement. Ontario courts rarely use blue-pencilling for non-competes and prefer to strike the clause entirely.

Striking the entire clause

If the covenant is drafted too broadly, courts will void it entirely. The drafting lesson: overreach on scope almost always results in zero protection — narrower, carefully drafted clauses are more likely to be enforced.

Drafting Enforceable Restrictive Covenants in 2026

Given the 2021 ban, Ontario employment lawyers now advise employers to focus on:

Robust confidentiality clauses that define trade secrets and confidential information with specificity
Carefully scoped non-solicitation clauses — limited to clients the employee actually dealt with and staff they managed
Garden leave clauses — paid notice periods that keep the employee away from competitors for a defined time
IP assignment clauses that ensure all work product belongs to the employer
Choice of law and jurisdiction clauses specifying Ontario courts
Independent legal advice (ILA) recitals — showing employees had opportunity to get advice before signing

Frequently Asked Questions

Are non-compete agreements enforceable in Ontario?

Mostly no. The Working for Workers Act, 2021 (effective October 25, 2021) amended the Employment Standards Act to prohibit employers from entering into non-compete agreements with most employees. The only exceptions are executives and senior management, and business sale transactions where the seller becomes an employee.

Can my employer still make me sign a non-solicitation agreement in Ontario?

Yes. Non-solicitation clauses — which restrict an employee from soliciting the employer's clients or employees after leaving — are not banned by the Working for Workers Act. Courts assess them using the same common law reasonableness test: geographic scope, duration, and breadth of restricted activities must be reasonable.

What is the difference between a non-compete and a non-solicitation clause?

A non-compete prevents an employee from working for competitors or starting a competing business in a defined area for a set period. A non-solicitation prevents an employee from soliciting the former employer's clients or staff. Non-competes are largely banned in Ontario for most employees; non-solicitation clauses are still permitted if reasonable.

What happens to non-compete agreements signed before October 2021?

The Working for Workers Act applies to agreements entered into on or after October 25, 2021. Agreements signed before that date are not automatically voided by the legislation but were already assessed under the common law reasonableness standard, which made most broad non-competes unenforceable anyway.

Can a business sale include a non-compete in Ontario?

Yes. The Working for Workers Act explicitly exempts non-compete agreements entered into in connection with the sale of a business, where the seller becomes an employee of the buyer. Courts still assess these for reasonableness, but the statutory ban does not apply.

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