Act
Proposed amendments to the Employment Standards Act, 2000 (ESA) to prohibit employers from entering non-compete agreements with employees.
Regulation Number(s):
N/A
Instrument Type:
Act
Bill or Act:
Employment Standards Act, 2000 (ESA)
Summary of Proposal:
The government is proposing amendments to the ESA that, if passed, would apply to employers (including prospective employers) and employees (including applicants for employment). Employers would be prohibited from entering into an employment contract or other agreement with an employee that is, or that includes, a non-compete agreement. A "for greater certainty" provision would state that, if the employer violates that prohibition, the non-compete agreement is void.
"Non-compete agreement" would mean 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.
Employees or prospective employees who refuse to sign such agreements would be protected by the ESA's reprisal protection.
Furthermore, an exception to the prohibition would apply if there is a sale of a business (or a part of a business) and the purchaser and seller enter a non-compete agreement with respect to the seller and the seller becomes an employee of the purchaser immediately after the sale.
If passed, the amendments will be deemed to have come into force on October 25, 2021. Employers would be prohibited from entering these agreements as of October 25, 2021. Non-compete agreements entered on or after October 25, 2021 would be declared void. Agreements entered before the date of introduction would not be affected.
"Non-compete agreement" would mean 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.
Employees or prospective employees who refuse to sign such agreements would be protected by the ESA's reprisal protection.
Furthermore, an exception to the prohibition would apply if there is a sale of a business (or a part of a business) and the purchaser and seller enter a non-compete agreement with respect to the seller and the seller becomes an employee of the purchaser immediately after the sale.
If passed, the amendments will be deemed to have come into force on October 25, 2021. Employers would be prohibited from entering these agreements as of October 25, 2021. Non-compete agreements entered on or after October 25, 2021 would be declared void. Agreements entered before the date of introduction would not be affected.
Analysis of Regulatory Impact:
Non-compete agreements restrain former employees from competing against their former employer's business for a period of time and throughout a geographic area. Canadian courts generally consider non-compete agreements to be "in restraint of trade", and generally unenforceable.
Despite this, academic research and anecdotal evidence suggests that:
• Companies continue to require current or prospective employees to sign non-compete agreements as a condition of employment; and
• Employers threaten or commence litigation against former employees and their prospective new employers for allegedly breaching these agreements.
A concern is that non-compete agreements create a chilling effect on employee mobility and hold down wages in sectors where non-compete agreements are prevalent. There is also a concern about (potentially frivolous) litigation in which employers seek the enforcement of non-compete clauses and/or damages for breach of contract against former employees and their prospective employers.
The proposed amendments are intended to address these concerns and signal that Ontario is open to enhancing worker mobility, fair competition and innovation. Employers would still be able to rely on narrower clauses, such as non-disclosure provisions that bar employees from sharing sensitive information, or non-solicitation agreements that restrict them from pursuing company clients.
As non-compete agreements are typically the subject of private contractual negotiations, the government is unable to determine how many non-compete agreements are used in Ontario employment relationships today. Nonetheless, Ministry expects the direct compliance costs associated with the proposal to be low.
Affected employers may need to revise their employment agreement templates (e.g., strike out non-compete clauses), but this would likely be a one-time change. Non-compete agreements in place before October 25, 2021 would be unaffected.
Despite this, academic research and anecdotal evidence suggests that:
• Companies continue to require current or prospective employees to sign non-compete agreements as a condition of employment; and
• Employers threaten or commence litigation against former employees and their prospective new employers for allegedly breaching these agreements.
A concern is that non-compete agreements create a chilling effect on employee mobility and hold down wages in sectors where non-compete agreements are prevalent. There is also a concern about (potentially frivolous) litigation in which employers seek the enforcement of non-compete clauses and/or damages for breach of contract against former employees and their prospective employers.
The proposed amendments are intended to address these concerns and signal that Ontario is open to enhancing worker mobility, fair competition and innovation. Employers would still be able to rely on narrower clauses, such as non-disclosure provisions that bar employees from sharing sensitive information, or non-solicitation agreements that restrict them from pursuing company clients.
As non-compete agreements are typically the subject of private contractual negotiations, the government is unable to determine how many non-compete agreements are used in Ontario employment relationships today. Nonetheless, Ministry expects the direct compliance costs associated with the proposal to be low.
Affected employers may need to revise their employment agreement templates (e.g., strike out non-compete clauses), but this would likely be a one-time change. Non-compete agreements in place before October 25, 2021 would be unaffected.
Further Information:
Bill 27: Working for Workers Act, 2021
Proposal Number:
21-MLTSD 027
Posting Date:
October 29, 2021
Comments Due Date:
November 22, 2021
Contact Address:
Employment, Labour, and Corporate Policy Branch
Ministry of Labour, Training and Skills Development
400 University Avenue, 15th Floor
Toronto ON M7A 1T7
Ministry of Labour, Training and Skills Development
400 University Avenue, 15th Floor
Toronto ON M7A 1T7