Employment law in Ontario is dynamic. It’s essential for small business owners to stay informed about changes that affect non-compete agreements. New legislation or legal precedents can impact enforceability.
As of October 25, 2021, Ontario’s Employment Standards Act, 2000 (ESA) prohibits employers from entering into non-compete agreements with employees, except in specific circumstances. These exceptions include:
- Sale of a Business: If a business is sold and the seller becomes an employee of the purchaser immediately after the sale, a non-compete agreement is permissible. This allows the purchaser to protect their newly acquired business interests.
- Executive Positions: Individuals in executive roles, such as President, Chief Executive Officer, Chief Financial Officer, and other similar positions, are exempt from the prohibition. This exception recognizes the unique impact these roles can have on a company’s competitive edge.
Non-compete agreements established before October 25, 2021, remain subject to common law evaluation. Their enforceability depends on the reasonableness of their terms, as highlighted in the 2022 case of Parekh et al v Schecter et al. Courts assess factors such as scope, duration, and geographic restrictions.
Understanding Non-Compete Agreements
Non-compete agreements are critical tools for safeguarding business interests. They are designed to prevent employees from joining competitors or starting a similar business for a specific duration.
In Ontario, these agreements must be carefully crafted to be enforceable. They must protect legitimate business interests without unfairly restricting the employee’s ability to work.
Common legitimate business interests include:
- Protection of trade secrets and proprietary information
- Safeguarding customer relationships
- Preventing unfair competition
It’s important to differentiate between non-compete and non-solicitation agreements. While non-compete agreements restrict employment opportunities, non-solicitation agreements prevent employees from poaching clients or colleagues.
Keeping Agreements Up-to-Date
Regularly review and revise non-compete agreements. This practice ensures they remain compliant with current laws and continue to serve your business’s needs effectively.
Conclusion and Next Steps for Small Business Owners
Understanding non-compete agreements is crucial for protecting your business. Ensure your contracts align with Ontario employment law. Regular legal reviews and consultation can safeguard your interests. Commit to staying informed and proactive, setting the stage for compliance and business growth in an evolving legal landscape.
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Faisal completed his Juris Doctor from University of Ottawa. He has extensive work experience at Deloitte, Scotiabank and CIBC. Faisal’s approach is grounded in a commitment to his clients’ objectives. He understands how frustrating the court process is for clients and fights to get you the best settlement possible.
