On October 25, Ontario Bill 27, Working for Workers Act, 2021 (“the Bill”) passed first reading. This Bill proposes amendments to our key Ontario employment statutes, including the Employment Standards Act, 2000 (the “ESA”) and the Occupational Health and Safety Act. In today’s post, we will review highlights regarding the proposed ban on non-competes and talk about how Ontario businesses can prepare.
A Ban On Non-Competes
One much-discussed element of the Bill is the proposed ban on non-competition agreements in employment contracts.
A non-competition agreement restricts – or tries to – an employee’s ability, for a period of time, to work for a competitor after leaving the employer. The restriction is usually somewhere between three months to two years.
The Bill would amend the Ontario Employment Standards Act, 2000 to include the following prohibition:
- 67.2 (1) No employer shall enter into an employment contract or other agreement with an employee that is, or that includes, a non-compete agreement.
And also voids non-competes that an employer may include in a contract in contravention of s.67.2(1):
- (2) For greater certainty, subsection 5 (1) applies and if an employer contravenes subsection (1), the non-compete agreement is void.
If the Bill passes Ontario would be the first Canadian jurisdiction to ban non-competes.
Exceptions to the Non-Compete Ban
The Bill contains an exception to the non-compete ban for the case of the sale or lease of a business. Commonly a former business owner will continue working in the business as an employee after it is sold. In this type of scenario, a non-compete would be permitted. This exception makes sense as these are scenarios where the parties are more likely to have equal bargaining power.
What’s the Impact on Employers?
In many many cases non-competes are included in contracts with employers knowing full well that they will never try to enforce them and that, even if they did, a court would never uphold them. Often they are included as a deterrent because employees will think they are enforceable and this may deter them from working for competitors. If employers are no longer able to include these clauses in contracts, they will lose this possible deterrent effect. However, often these non-competes were not worth attempting to enforce because the employer suffered no damages from the former employee’s competition. All around they are many times a little meaningless. So employers, for the most part, should not be worried.
Non-Solicits and Confidentiality – the Employer’s Other Tools
Non-solicitation agreements will not be impacted by the passing of the Bill. These are often more useful to employers and also more likely to be upheld by a court. A non-solicitation agreement restricts a former employee from soliciting clients, potential clients, other employees etc. of their former employer. It restricts the employee from taking the contacts they made while working for the employer to another employer.
Employees, whether they sign a confidentiality agreement or not, have a duty of loyalty to their former employers which includes not revealing or using their confidential information ever. Employers often have employees enter into confidentiality agreements to make these duties explicit. These types of agreements are not impacted by the Bill.
If you have questions about Bill 27, non-competition agreements or other contractual terms get in touch for a consultation.
