Are Non-Compete Clauses Allowed in Ontario?

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The rule since October 25, 2021

Many Ontario employment contracts used to include a clause stopping an employee from working for a competitor after leaving. Ontario’s Working for Workers Act, 2021 changed that by adding Part XV.1 to the Employment Standards Act, 2000 (ESA). The Ministry’s guide to the ESA puts the effect simply: effective October 25, 2021, employers are prohibited from entering into employment contracts or other agreements with an employee that include a non-compete agreement. For business owners, this affects how employment contracts, shareholder arrangements and business sales are drafted, which is why it comes up in our commercial contracts work.

The key provisions are short:

The definition (section 67.1). A non-compete agreement is an agreement, or any part of one, between an employer and an employee that prohibits the employee from engaging in any business, work, occupation, profession, project or other activity that competes with the employer’s business after the employment relationship ends. “Employee” includes an applicant for employment, and “employer” includes a prospective employer.
The ban (section 67.2(1)). No employer shall enter into an employment contract or other agreement with an employee that is, or includes, a non-compete agreement.
The consequence (section 67.2(2)). If an employer contravenes the ban, the non-compete agreement is void.

The Ministry’s guide adds three points that catch many employers out. A clause is still a non-compete whether or not it is limited in time or geography. The ban applies before employment begins, during it and after it ends. And what matters is the substance of the clause, not its heading.

How to check a clause, step by step

Is it between an employer and an employee? The ESA definition only covers employer-employee agreements, including applicants and prospective employers.
When was it entered into? The guide says the ESA does not prohibit non-compete agreements entered into before October 25, 2021, although employees may have greater rights under the common law.
Does it stop competing work, or something narrower? A clause that only stops soliciting clients or employees, or only protects confidential information, is not a non-compete under the ESA.
Is the employee an executive? Section 67.2(4) excludes executives, as defined in section 67.2(5).
Is it part of a sale of a business? Section 67.2(3) excludes a non-compete agreed as part of a sale, where the seller becomes the buyer’s employee immediately after the sale.
If an exception applies, is the clause still enforceable? The guide says to talk to a lawyer about enforceability even where an exception applies, because the common law has its own limits.

How Ontario’s ESA treats restrictive clauses
Clause or situation	Banned by ESA s. 67.2?	Basis
Non-compete in an ordinary employee’s contract, signed on or after Oct. 25, 2021	Yes, and void	ESA ss. 67.1, 67.2(1), (2)
Non-compete signed before Oct. 25, 2021	Not by the ESA; common law questions remain	Ministry ESA guide
Non-compete with an executive (CEO, president, CFO, COO and the other listed chief roles)	No	ESA s. 67.2(4), (5)
Non-compete agreed by a seller who becomes the buyer’s employee immediately after the sale	No	ESA s. 67.2(3); “sale” includes a lease
Non-solicit of clients, customers or employees	No	Ministry ESA guide
Non-disclosure (confidentiality) clause	No	Ministry ESA guide
Non-compete between business owners who are not employer and employee	Outside the ESA definition	ESA s. 67.1

What changes the answer

Executives

Section 67.2(5) defines an executive as a person who holds 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 or chief corporate development officer, or any other chief executive position. A senior manager without one of those offices is not an executive for this purpose, whatever their title says.

Selling a business

The sale exception in section 67.2(3) applies where, as part of a sale of a business or part of one, the buyer and seller agree that the seller will not compete with the buyer’s business after the sale, and immediately after the sale the seller becomes the buyer’s employee. The Ministry’s guide describes the exception as applying to a sale or lease of a business operated as a sole proprietorship or a partnership. Where the seller is a corporation and the individual owner is joining the buyer, the drafting needs particular care. Our page on buying or selling a business explains how these clauses fit into the purchase agreement. The structure choice is covered in asset sale or share sale.

Owners and shareholders

The ESA ban is about employers and employees. A promise between co-owners in a shareholders’ agreement not to compete with the company is not an employer-employee agreement as such, but an owner who also works in the business is often an employee too. That overlap is worth reviewing in any shareholders’ agreement signed or updated since 2021, including a unanimous shareholder agreement.

What still protects a business

The Ministry’s guide confirms the ESA does not prohibit non-solicit agreements, which stop an employee from soliciting clients, customers, vendors, business partners or other employees, or non-disclosure agreements, which stop an employee sharing confidential information. Both remain subject to the common law, and the guide says employees may have greater rights there. Our page on what an NDA should cover looks at confidentiality in more detail.

Enforcement

The guide says employees, applicants and former employees can file a claim with the Ministry if they believe they entered into a prohibited non-compete agreement on or after October 25, 2021, or were penalized for refusing to sign one. It also notes that the ESA does not stop the parties from going to court over enforceability. A dispute of that kind needs separate advice.

Example

For example, imagine Sana sells her Richmond Hill bookkeeping practice, run as a sole proprietorship, to a larger firm, and joins the buyer as an employee on the closing date. The purchase agreement includes her promise not to open a competing practice within a set area for a set period. Because the non-compete is part of the sale and she becomes the buyer’s employee immediately afterwards, section 67.2(3) takes it outside the ESA ban.

The buyer also hires Tom, one of Sana’s staff, on a new employment contract with a clause stopping him from working for any competitor for a year after he leaves. That clause is a non-compete under section 67.1, Tom is not an executive, and it was entered into after October 25, 2021, so it is void. A clause stopping Tom from soliciting the firm’s clients, and a confidentiality clause, would not be caught by the ban.

Common mistakes

Keeping an old template. Employment contracts written before 2021 often still carry a non-compete that is now void for new hires.
Relabelling a non-compete. The guide is clear that substance matters, not the heading.
Assuming a title makes someone an executive. Only the offices listed in section 67.2(5), or another chief executive position, qualify.
Forgetting the seller must become an employee. The sale exception depends on that happening immediately after the sale.
Asking a new hire to sign later. The ban applies before, during and after employment.
Relying on the non-compete alone. Non-solicit and confidentiality clauses, drafted well, often do the real work.

What to do this week

Pull your current employment contract template and look for any clause that restricts competing work after employment ends. A buyer will look for the same thing in due diligence.
Note which employees signed before October 25, 2021 and which after.
List who in the company actually holds one of the executive offices in section 67.2(5).
Check your non-solicit and confidentiality clauses, which remain available.
If you are buying or selling a business, raise the non-compete early, because the exception depends on how the deal is structured.
Have the template reviewed. A first consultation takes 30 minutes, by video or in person, and you can request one here.

Frequently asked questions

Is my old non-compete still valid?

The ESA ban does not reach non-compete agreements entered into before October 25, 2021, according to the Ministry’s guide. Whether a particular older clause can be enforced is a separate question under the common law.

Can I make a non-compete shorter or local to get around the ban?

No. The guide says a clause can be a non-compete whether or not it is time-limited or geographically restricted.

Are non-solicit clauses still allowed?

Yes. The ESA does not prohibit non-solicit agreements or non-disclosure agreements, although employees may have greater rights under the common law.

Does the ban apply to independent contractors?

The ESA ban applies to employees as the Act defines them. Whether someone called a contractor is really an employee depends on the facts, so check before relying on a non-compete with them.

Can a buyer of my company make me sign a non-compete?

Yes, where section 67.2(3) applies: as part of the sale, and you become the buyer’s employee immediately afterwards. Outside an employer-employee relationship, the ESA ban does not apply at all.

What happens if an employer uses a banned clause?

Section 67.2(2) makes the clause void, and the guide says the employee can file a claim with the Ministry.

For the rest of the documents a business signs, see our corporate law page.

Sources

This page is general information about Ontario law, not legal advice for your situation. It reflects the law as of October 26, 2026.

Are non-compete clauses enforceable in Ontario?