If you run a small business in Ontario, the non-compete clause you have been relying on is probably worthless — the province banned them for employees. Here is the practical owner's playbook for protecting your clients, your staff, and your know-how with tools that actually hold up.
By Jonathan Kleiman, Barrister & Solicitor · Published June 2026
For years, small business owners protected themselves with a non-compete clause in every employment contract: "if you leave, you can't compete with us." It was simple, it felt tough, and — as of 2021 — for most employees it is void. Ontario banned employee non-competes, and a lot of small businesses are still relying on a clause that no longer does anything. This guide is written for owners: not a legal lecture on the statute (for that, see our deep dive on whether non-competes are enforceable in Ontario), but a practical playbook for what to actually use instead, and where the few remaining non-competes still belong.
The single most important thing for a small business owner to understand: since October 25, 2021, employers cannot enter into non-compete agreements with employees, and a prohibited clause is void. That applies to your business no matter how small you are. So if your protection plan is "they signed a non-compete," you may have no plan at all. The good news is that the tools that protect what small businesses genuinely care about — clients, staff, and confidential information — were never the non-compete, and they are still fully available. You just have to use them deliberately.
Big companies usually had layered protections — sophisticated non-solicitation and confidentiality terms, IP assignments, and legal teams to enforce them. Small businesses often leaned on the blunt instrument: a single non-compete clause copied from a template. When that instrument was taken away, larger employers barely noticed, while many small businesses were left exposed without realizing it. If you are an owner who assumed your old contract had you covered, you are exactly who this guide is for — and the fix is straightforward once you know what to reach for.
Step back from "non-compete" and ask what you truly need to protect. For almost every small business, it comes down to three things:
Notice what is not on the list: stopping a former employee from earning a living in your industry. That is what a non-compete tried to do, and it is precisely what Ontario decided employers should not impose on employees. Protect the three things above and you have protected the business.
The workhorse for a small business is now the non-solicitation clause. It does not stop a former employee from competing in general — it stops them from soliciting your clients and your staff for a reasonable period after they leave. Crucially, non-solicitation clauses are not banned, so a well-drafted one is enforceable where a non-compete is not. For most owners, this is 80% of the protection they actually wanted from a non-compete, and it survives. The keys to a good one: tie it to the clients and staff the employee actually dealt with, keep the duration reasonable, and write it clearly. A restrictive covenant lawyer can draft one that fits your business and holds up.
The second pillar is a confidentiality / non-disclosure agreement. Your client list, your pricing, your methods, and your supplier relationships are assets — and a confidentiality obligation protects them whether or not anyone competes with you. Pair it with practical habits: limit who can access sensitive data, and make sure employment agreements assign ownership of work product (designs, code, content) to the business, not the individual who made it. See our NDA and confidentiality page for how these fit together. For a small business, a solid confidentiality agreement is often more valuable than any non-compete ever was, because it protects the information that makes you competitive — not just the people.
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The ban is not total. There are two situations where a small business can still use a non-compete:
Outside these, assume an employee non-compete in your small business is void, and build your protection from non-solicitation and confidentiality instead.
Many small businesses use independent contractors, and the rules differ: the non-compete ban applies to employees, not to genuine contractors, so a reasonable non-compete with a true contractor may be enforceable. But be careful — courts decide who is really a contractor based on the substance of the relationship (control, integration, who bears the risk), not the label in your agreement. Misclassifying a worker can void the clause and trigger other liabilities (unpaid entitlements, source deductions). If you are relying on a contractor non-compete, have a contract lawyer confirm the relationship is genuinely what you think it is.
If your small business has more than one owner, the most important non-compete may not be in an employment contract at all — it belongs among the owners. A shareholders' agreement or partnership agreement can include reasonable non-compete and non-solicitation covenants among co-owners, and these are not the employee non-competes caught by the ban. If your real worry is a co-founder walking out and setting up across the street, that protection goes in the ownership documents — and it is one of the most overlooked gaps in small-business agreements.
You do not need a 20-page contract. You need the right few clauses, drafted tightly:
When a valued employee resigns — especially to a competitor or their own venture — act calmly and deliberately. First, confirm which covenants actually apply: usually a non-solicitation and confidentiality obligation, not the void non-compete. Secure your confidential information, accounts, and access. Then, before you fire off a threatening letter, get advice. Brandishing a void non-compete can backfire and even expose you to a complaint; enforcing a genuinely valid non-solicitation clause, by contrast, is a real and effective option — sometimes including an injunction through the Superior Court if a clear breach is underway. The difference between an empty threat and an enforceable claim is exactly what a quick legal review tells you.
Before papering everything, it is worth an honest question: how much do you actually need? Not every small business does. If your work is largely interchangeable, your clients are one-off rather than relationship-driven, and you hold no real trade secrets, heavy restrictive covenants may be more friction than protection — and they can make you a less attractive employer. The point of this guide is not to load every contract with clauses; it is to make sure the protection you do have is lawful and effective. For many small businesses, a clean confidentiality clause plus a modest non-solicitation for client-facing staff is the whole answer. Match the protection to the genuine risk, not to a sense that "we should have something."
Restrictive covenants work best when they are part of a routine, not a panicked afterthought. On the way in, make the right agreement part of onboarding: every employee signs an up-to-date contract with a reasonable non-solicitation clause, a confidentiality obligation, and an IP assignment — before they start, when there is fresh consideration for the promises. Bolting a restrictive covenant onto an existing employee later, with nothing given in return, can make it unenforceable, so timing matters. On the way out, have a simple offboarding routine: remind departing employees of their continuing obligations in writing, recover devices and data, and cut off access promptly. A small business that handles entries and exits consistently rarely needs to threaten anyone — the protection is already in place and the information is already secured. A contract lawyer can set up templates that make this routine.
One underused option for a small business worried about a key departure is the notice period itself. Where the employment contract allows, an employer can keep a resigning employee on "garden leave" — still employed and paid through their notice, but kept away from clients and sensitive work — which buys time to stabilize relationships before the person can compete or solicit. It is not a substitute for non-solicitation and confidentiality, and it has to be built into the contract properly, but for the rare high-risk role it can be a practical buffer. Like everything else here, it works only if it is set up in advance, in writing. For most small businesses, a well-drafted non-solicitation clause does the heavy lifting; garden leave is a tool to consider for the one or two roles where a departure could really sting.
For a small business, enforcement is a business decision as much as a legal one. Suppose a former employee breaches a valid non-solicitation clause and starts contacting your clients. You can act — a demand letter often stops it, and a clear, ongoing breach can support an injunction in the Superior Court — but litigation costs money and attention a small business may not want to spend. The practical questions are the same ones in any dispute: how clear is the breach, how much harm is it doing, and is the clause genuinely enforceable? A strong, narrow clause that is plainly being broken is worth defending, because letting it slide invites the next departing employee to do the same. A vague, overbroad clause is usually not worth the fight — which is the whole argument for getting the drafting right in the first place. The cheapest enforcement is a clause so clearly reasonable that no one risks testing it, and a demand letter that ends the matter before it starts. If you do face a real breach, a quick read from a litigation lawyer will tell you whether you have a claim worth pursuing or a clause not worth the postage.
The non-compete reflex is over for small businesses — but protecting your business is not. The owners who adapt simply swap the blunt, now-void instrument for the precise tools that survive.
Done right, a small business ends up better protected than it was under the old non-compete — with clauses that actually hold up when they are needed, and a clear plan for the day a key person walks out the door. That is a far stronger position than a tough-sounding clause that turns out to be worth nothing, and it costs surprisingly little to put in place.
For ordinary employees, generally no. Since October 25, 2021, the Employment Standards Act prohibits employers — including small businesses — from entering non-compete agreements with employees, and a prohibited clause is void. Small businesses can still use non-competes in two situations: when selling the business, and with defined executives. For everyone else, non-solicitation and confidentiality clauses are the tools that work.
A non-solicitation clause (preventing a departing employee from poaching your clients or staff) and a confidentiality / non-disclosure agreement (protecting your customer list, pricing, and trade secrets), plus clear ownership of work product. Together these protect what most small businesses actually worry about, without running into the non-compete ban.
If it was signed on or after October 25, 2021, an employee non-compete is generally void. If it was signed before that date, it is not automatically voided by the statute but is assessed under the common-law reasonableness test, under which broad non-competes are usually unenforceable anyway. Either way, do not rely on it without advice.
Often yes — through a reasonable non-solicitation clause. Unlike non-competes, non-solicitation clauses are not banned, and a well-drafted one can prevent a departing employee from soliciting the clients and staff they worked with, for a reasonable period. It has to be reasonable in scope and duration to be enforceable.
Yes. The ban contains a specific exception for the sale of a business: when you sell and the buyer requires you not to compete, a reasonable non-compete can be enforceable. Buyers almost always require this to protect the goodwill they are paying for, so expect it on the sale of your business.
The ban applies to employees, not to genuine independent contractors, so a reasonable non-compete with a true contractor may be enforceable. But whether someone is really a contractor or actually an employee is decided by the courts on the substance of the relationship — misclassifying a worker can void the clause and create other liabilities.
It must be reasonable — no broader than necessary to protect a legitimate business interest like client relationships, and reasonable in duration and scope. A clause targeting the specific clients or staff the employee actually dealt with, for a defined period, is far more likely to be enforced than a sweeping one.
Generally no. Ontario courts usually will not rewrite or narrow an unreasonable restrictive covenant to make it enforceable. If your clause is too broad or ambiguous, it tends to fail entirely. For a small business, a precise, modest clause is worth far more than an aggressive one that collapses when tested.
With a confidentiality / non-disclosure agreement and clear policies on who can access what. Treat your client list, pricing, and methods as confidential information, limit access, and make sure employment agreements assign ownership of work product to the business. A confidentiality obligation survives the ban and protects your core assets.
Yes — covenants among owners are different from employee non-competes. A shareholders’ agreement or partnership agreement can include reasonable non-compete and non-solicitation terms among the owners, which are not caught by the employee ban. If competition between co-owners is your concern, that is where the clause belongs.
Move calmly and quickly: confirm what restrictive covenants actually apply (non-solicitation and confidentiality, usually — not a void non-compete), secure your confidential information and accounts, and get advice before sending any threatening letter. Overstating a void non-compete can backfire; enforcing a valid non-solicitation is a real option.
For a small business, a short investment here pays off. A lawyer can replace your unenforceable non-compete with a reasonable non-solicitation clause, a solid confidentiality agreement, and proper IP assignment — giving you protection that will actually hold up, rather than a clause that looks tough but is void.
If your small business is still relying on an old non-compete, it is worth a short conversation to replace it with protection that works. Call 416-554-1639 or book a free consultation.
Ontario banned employee non-competes, but your clients, staff, and trade secrets can still be protected. Jonathan Kleiman builds restrictive-covenant packages that actually hold up. Free 30-minute consultation.