Non-Compete &
Non-Solicitation Lawyer.

What are restrictive covenants?

Restrictive covenants are contractual clauses that limit what a person can do after a business relationship ends. The three most common types are non-compete clauses, non-solicitation clauses, and confidentiality clauses.

A non-compete prevents someone from working for or starting a competing business. A non-solicitation prevents someone from soliciting the other party's customers or employees. A confidentiality clause prevents the disclosure of proprietary information.

These clauses appear in employment agreements, independent contractor agreements, partnership agreements, shareholder agreements, and business sale agreements. Whether they are enforceable depends on how they are drafted and the context in which they are used. For a detailed overview, see our guide to non-compete and non-solicitation agreements in Ontario.

Ontario's employee non-compete ban

Since October 25, 2021, the Employment Standards Act (section 67.2) prohibits employers from entering into non-compete agreements with employees. Any non-compete clause in an employment agreement signed after that date is void and unenforceable.

There is one narrow exception: employers can still use non-compete clauses for C-suite executives — employees who hold the title of chief executive officer, president, chief administrative officer, chief operating officer, chief financial officer, chief information officer, chief legal officer, chief human resources officer, or chief corporate development officer.

The ban applies only to non-compete clauses in the employment context. It does not affect non-solicitation clauses, confidentiality clauses, or restrictive covenants in business sale agreements.

Non-solicitation clauses

Non-solicitation clauses remain enforceable for employees in Ontario. Unlike non-competes, they are not prohibited by the ESA. However, they must be reasonable to be upheld by a court.

Customer non-solicitation

Prevents a departing employee or business seller from actively soliciting the other party's customers. The clause should clearly define which customers are covered — for example, customers the employee personally dealt with during a specified period.

Employee non-solicitation

Prevents a departing party from recruiting or hiring the other party's employees. Common in both employment agreements and business sale agreements to protect the stability of the workforce.

Non-competes in business sales

The ESA's non-compete ban does not apply to business sale transactions. Non-compete clauses are standard — and expected — in asset purchase agreements and share purchase agreements.

When someone sells a business, the buyer needs assurance that the seller will not immediately open a competing business and take back the customers and goodwill the buyer just paid for. Courts recognize this and are more willing to enforce non-competes in the sale context than in the employment context.

Even in business sales, the non-compete must still be reasonable. Courts will assess the scope of the restricted activities, the geographic area, and the duration. A well-drafted clause should be no broader than necessary to protect the buyer's legitimate interest in the goodwill they purchased.

What makes a restrictive covenant enforceable?

Ontario courts apply a reasonableness test to restrictive covenants. A covenant will only be enforced if it meets all of the following criteria:

• Reasonable scope — the restricted activities must be clearly defined and no broader than necessary to protect a legitimate business interest
• Reasonable duration — the restriction period must be proportionate. One to two years is common; longer periods require stronger justification.
• Reasonable geographic area — the restricted territory must relate to where the business actually operates or where the employee actually worked
• Protects a legitimate business interest — the restriction must protect something real: trade secrets, confidential information, customer relationships, or goodwill

If a court finds any element unreasonable, the entire clause may be struck down. Ontario courts generally do not "read down" or rewrite an unreasonable covenant to make it enforceable — ambiguity is resolved against the party who drafted it. For a deeper analysis, read our guide to non-compete and non-solicitation agreements in Ontario.

A restrictive covenant is only as strong as its drafting. Overly broad restrictions are worse than no restrictions at all — they give a false sense of protection and fail when you need them most.

Non-compete and non-solicitation services

As a Toronto business lawyer, Jonathan Kleiman advises businesses and employees on all aspects of restrictive covenants:

• Drafting non-compete and non-solicitation agreements for employers — enforceable clauses tailored to your business, your industry, and Ontario law
• Reviewing restrictive covenants for employees and business buyers — independent assessment of what you are being asked to sign and whether it is enforceable
• Enforcing breached covenants — demand letters, injunction applications, and litigation when someone violates their obligations
• Defending against enforcement — challenging unreasonable or overbroad restrictions on behalf of employees and departing business partners
• Employment agreements with restrictive covenants — drafting and reviewing employment contracts that include properly scoped non-solicitation and confidentiality clauses
• Business sale agreements with non-compete provisions — ensuring restrictive covenants in acquisition agreements protect the buyer without being vulnerable to challenge

Flat-fee pricing. Free 30-minute consultation. Call 416-554-1639 or book a free consultation.