Key Takeaways
- Non-compete clauses are largely banned in Ontario under Bill 27, with only two exceptions: certain executive roles and business sale agreements that meet strict conditions.
- Non-solicit clauses are still legal but must be clearly written and reasonable in terms of time, geography, and activity scope to be enforceable.
- Overly broad clauses can be struck down, even if the intent is valid. Reasonableness is judged case-by-case.
- Employers should prioritize non-solicit clauses over non-competes unless an exception applies.
- Best practices in 2025 include regularly updating contracts, tailoring restrictions to the employee’s role, and having agreements reviewed by legal professionals.
A well-drafted clause can safeguard competitive advantages, while an overbroad one may do more harm than good.
Restrictive covenants, such as non-compete and non-solicit clauses, have traditionally served as tools for Ontario employers aiming to protect their businesses when employees depart. However, in recent years, the rules governing these clauses have changed significantly.
Here’s what employers need to know to stay compliant and protect their interests:
Policy change on Non-Competes: Bill 27 and the ESA Ban
In 2021, Ontario passed Bill 27, the Working for Workers Act, 2021, which amended the Employment Standards Act, 2000 (ESA) to prohibit non-compete agreements for most employees. The law came into effect on October 25, 2021, and applies only to agreements made on or after that date.
- There are two exceptions to the ban:
Executives: A narrow exception exists for certain “executives,” those in high-level roles like CEO, CFO, COO or equivalent. - Business Sales: If a business is sold and the buyer employs the seller immediately after, a non-compete agreement may be enforced between the buyer and the seller if all of the following apply:
- A sole proprietorship or partnership (or part of one) is sold or leased;
- The seller becomes an employee of the buyer immediately after the sale;
- The non-compete after the sale is part of the sale agreement.
What About Non-Solicit Clauses?
Unlike non-competes, non-solicit clauses remain legal, but they’re only enforceable if they meet the common law standard of reasonableness. That means they must be:
- Clearly drafted
- Reasonable in scope
- Limited in geography
- Limited in time
Courts are generally more comfortable with non-solicit clauses than non-compete clauses, especially when the goal is to prevent poaching, rather than eliminating competition altogether.
How Reasonableness is Assessed
Reasonableness is everything. A clause can be struck down if it’s too broad in any one of the following ways:
Factor | Good Example | Risky Example |
Time Limit | 6-12 Months | 2-5 years |
Geographic Scope | A city or region | “Anywhere in North America” |
Activity Scope | Specific clients or services | Any work in the same industry |
Best Practices for Ontario Employers in 2025
To stay compliant and protected, Ontario employers should:
- Consider using non-solicit clauses instead of non-compete clauses, unless one of the exceptions apply.
- Tailor each clause to the employee’s role and legitimate business interests.
- Include a severability clause, though this won’t always win the day in Court, this can help your position.
- Update employment contracts regularly to comply with the latest laws.
- Have contracts drafted and reviewed by a legal professional, especially if you’re using older templates.
How Greenwood Law Can Help
Restrictive covenants can still offer strong protection for your business – but only if they’re drafted with a clear understanding of today’s legal standards.
At Greenwood Law, we help employers draft clear, enforceable contracts that protect their interests and comply with Ontario’s latest legal requirements. If you’re reviewing your employment agreements or need guidance on restrictive covenants, we’re here to help.