Non-Compete &
Non-Solicitation Lawyer.
Restrictive covenants drafted and reviewed where Ontario law lets them work: business sales, shareholder and contractor agreements, executive terms, and the non-solicitation clauses that still bind employees.
· Reviewed by Jonathan Kleiman, J.D.
Ontario Bar
250+ reviews
consultation
What are restrictive covenants?
Restrictive covenants are contract clauses that limit what a person can do after a business relationship ends. The three most common are non-compete clauses, non-solicitation clauses, and confidentiality clauses.
A non-compete stops someone from working for or starting a competing business. A non-solicitation clause stops them from going after the other party's customers or employees. A confidentiality clause stops them from using or disclosing protected information.
These clauses show up in employment agreements, contractor agreements, partnership agreements, shareholders' agreements, and business purchase agreements. Whether one holds up depends on who signed it, in what context, and how it's written.
Ontario's employee non-compete ban
Since October 25, 2021, the Employment Standards Act, 2000 has prohibited employers from entering into non-compete agreements with employees, and a non-compete in breach of the ban is void. The rules are in sections 67.1 and 67.2 of the Act.
The Act defines a non-compete as an agreement between an employer and an employee that prohibits the employee from engaging in competing business, work, or activity after the employment relationship ends. There are two exceptions:
- Sale of a business. If a business, or part of one, is sold and the seller becomes the buyer's employee immediately after the sale, the ban doesn't apply to the seller's non-compete with the buyer. A lease of a business counts as a sale for this purpose.
- Executives. The ban doesn't apply to executives: the chief executive officer, president, chief administrative officer, chief operating officer, chief financial officer, chief information officer, chief legal officer, chief human resources officer, chief corporate development officer, or anyone holding another chief executive position.
Non-solicitation and confidentiality clauses aren't covered by the ban, and neither is a non-compete with someone who isn't an employee. Those are judged under the common-law reasonableness test below. For what a smaller business can use instead, see the playbook on non-compete clauses for small businesses.
Does the ban apply to your agreement?
| Who signed | ESA ban? | What decides enforceability |
|---|---|---|
| Employee, not an executive (signed on or after Oct. 25, 2021) | Yes | The non-compete is void. Non-solicitation and confidentiality clauses can still be enforced if reasonable. |
| C-suite executive | No | Common-law reasonableness, applied strictly because it's an employment covenant |
| Seller of a business who doesn't work for the buyer | No (not an employee) | Reasonableness, with a presumption of validity for covenants negotiated in a sale |
| Seller who becomes the buyer's employee right after the sale | No (sale exception) | Reasonableness, measured against the goodwill the buyer paid for |
| Independent contractor | No, if genuinely independent | Reasonableness. If the "contractor" is really an employee, the ban applies. |
| Another business (supplier, distributor, franchisee, joint venture partner) | No | Reasonableness between commercial parties |
Non-solicitation clauses
Non-solicitation clauses are still allowed for employees in Ontario, but they have to be reasonable to be enforced. They're narrower than a non-compete, which is why courts uphold them more often.
Customer non-solicitation
Stops a departing employee or a seller from actively soliciting the other party's customers. The safest versions cover customers the person actually dealt with during a set period before leaving, not every customer the business has ever had.
Employee non-solicitation
Stops a departing party from recruiting the other party's employees. It's common in employment agreements and in business sales, where the buyer is counting on the team staying.
Non-competes when a business is sold
A buyer can require the seller to sign a non-compete, and Ontario courts treat sale covenants far more generously than employment ones. The buyer is paying for goodwill, and a seller who opens across the street the next month takes it back.
The Supreme Court of Canada explained the difference in Payette v. Guay inc., 2013 SCC 45: parties to the sale of a business have more freedom of contract than an employer and employee, and a sale covenant is reasonable if it's limited to what's needed to protect the buyer's legitimate interests. The Court of Appeal for Ontario has since described a presumption of validity for covenants negotiated as part of the sale of a business.
The Court of Appeal applied that approach in Dr. C. Sims Dentistry Professional Corporation v. Cooke, 2024 ONCA 388. A dentist sold the shares of his Hamilton practice for $1.1 million, agreed to stay on as an associate for at least two years, and agreed not to practise within 15 km for five years after his association with the practice ended. When the association ended and he started working at a practice 3.3 km away, the buyer sued. The trial judge enforced the covenant and the Court of Appeal dismissed his appeal. It pointed to the commercial context: both sides had lawyers and equal bargaining power, and the seller's own valuation had anticipated a five-year covenant. On duration, it noted that courts regularly find five-year covenants reasonable, while stressing that everything depends on the business. On territory, the question was where the practice that was sold drew its patients, not where the buyer's other businesses operate.
The covenant still has to be reasonable. If you're buying a business, that means tying the restriction to what you're actually acquiring.
Need a non-compete reviewed or drafted?
Free 30-minute consultation. Flat fee quoted before any work starts.
What makes a restrictive covenant enforceable?
Ontario courts enforce a restrictive covenant only if it's reasonable between the parties and protects a legitimate interest. They look at:
- The activities covered: clearly defined and no broader than needed to protect the business
- Territory: tied to where the business actually operates or where the person actually worked
- Duration: proportionate to how long the interest needs protecting
- A legitimate interest: goodwill, customer relationships, or confidential information, not just a wish to avoid competition
In employment cases, the Supreme Court of Canada held in Shafron v. KRG Insurance Brokers (Western) Inc., 2009 SCC 6, that a court won't rewrite an unreasonable covenant into a reasonable one, and that an ambiguous covenant, such as one covering an undefined territory, is unenforceable. A court may strike out a trivial part that's clearly severable, but only rarely. For a deeper look, read the guide to non-compete and non-solicitation agreements in Ontario.
How to draft a sale-of-business non-compete that holds up
With the employee ban in place, a business sale is where most Ontario non-competes now get written. These drafting points decide whether one holds up:
- Start from the goodwill, not a template. Ask what the buyer is actually paying for: which customers, which services, which locations. The covenant restricts that and nothing more. A covenant that reaches lines of business the seller never ran is the easiest one to attack.
- Measure the territory from the business sold. A radius from the premises, or the area where the customer list actually sits. Not the buyer's whole footprint, and never "Canada" for a business that served one city.
- Pick the start date on purpose. If the seller is staying on after closing, a covenant that runs from closing can expire while they're still in the building. In Sims, the five years ran from the end of the seller's association with the practice. Choose the date that fits the deal and say it plainly.
- Keep it in the purchase documents. If the seller is becoming an employee, keep the non-compete in the purchase agreement or a standalone covenant between seller and buyer, where it's plainly part of the sale, and keep the employment agreement to non-solicitation and confidentiality.
- Write it so no one needs a court to fix it. Defined terms, a defined territory, a defined period. Courts don't rescue vague covenants, so leave nothing for them to interpret.
- Flag the tax point early. The Income Tax Act has specific rules for amounts received for restrictive covenants. Have both sides' accountants look at the price allocation before the agreement is signed, not after.
If someone breaches a non-compete or non-solicit
Keep records, send a demand letter, and decide quickly whether you need damages or a court order. A demand letter often ends it, especially when the covenant is well drafted.
If the loss is $50,000 or less, Jonathan can pursue damages in Small Claims Court. If you need an order stopping the competition, that's an injunction in the Superior Court, and Jonathan refers it to trusted litigation counsel. Delay can hurt an injunction request, and Ontario's basic limitation period for a breach of contract claim is generally two years from when you discovered the breach. For how contract claims are run, see the contract disputes page.
A restrictive covenant is only as strong as its drafting. An overbroad one is worse than none: it gives a false sense of protection and fails when you need it most.
How Jonathan helps: what's included and what's not
Restrictive covenant work is done on a flat fee, quoted before anything starts.
Included
- Free 30-minute consultation
- Drafting non-competes and non-solicits in asset and share purchase agreements
- Restrictive covenants in shareholders' agreements, partnership agreements, and contractor and supplier agreements
- Executive agreements with restrictive covenants
- Non-solicitation and confidentiality clauses in employment agreements
- Reviewing a covenant you've been asked to sign, for buyers, sellers, employees, and departing partners
- Demand letters, and responses to demand letters
- Small Claims Court claims for breach, up to $50,000
Not included
- Injunctions and other Superior Court proceedings, which are referred to trusted litigation counsel
- Tax advice on allocating the purchase price to a covenant, which is for your accountant
Call 416-554-1639 or book a free consultation.
FAQs.
Common questions about non-compete and non-solicitation agreements in Ontario.
Are non-compete agreements enforceable in Ontario?
It depends who signed it. For an ordinary employee, a non-compete entered into on or after October 25, 2021 is void under the Employment Standards Act. The ban doesn't cover executives, a seller who becomes the buyer's employee right after a sale, or anyone who isn't an employee. Those non-competes can be enforced if they're reasonable in the activities covered, the territory, and the duration.
What is the difference between a non-compete and a non-solicitation clause?
A non-compete stops someone from competing at all, by working for a competitor or starting one. A non-solicitation clause only stops them from going after the other party's customers or employees. Non-solicitation clauses are narrower, aren't banned by the Employment Standards Act, and are more often enforced.
Does the non-compete ban apply to independent contractors?
No. The Employment Standards Act ban applies to employees. A genuine independent contractor's non-compete is judged under the ordinary reasonableness test. But the label in the contract isn't what decides it: if the contractor is really working as an employee, the ban applies anyway.
Can I make a seller sign a non-compete when I buy a business?
Yes. It's standard in an asset or share purchase, and courts give these covenants more room than employment ones because the buyer is paying for the goodwill. Ontario's Court of Appeal applies a presumption of validity to covenants negotiated as part of a sale. The covenant still has to be reasonable for the business that was sold.
How long can a non-compete last?
There's no fixed statutory limit, so it comes down to what's reasonable. In a business sale, courts often uphold restrictions of several years, and five-year covenants are regularly found reasonable, but everything depends on the business. With an executive, courts look harder and shorter periods are easier to defend.
Will a court fix an overbroad non-compete?
Don't count on it. In an employment context the Supreme Court of Canada has said courts won't rewrite an unreasonable covenant into a reasonable one, and an ambiguous covenant is unenforceable. A court may strike out a trivial part, but only rarely. Draft it right the first time.
Can my employer make me sign a non-solicitation agreement?
Yes. Non-solicitation clauses aren't banned by the Employment Standards Act. They still have to be reasonable to be enforced, which usually means limiting them to customers or employees you actually dealt with, for a defined period.
What should I do if someone is violating a non-compete?
Act quickly and keep records of what they're doing. Jonathan can send a demand letter and, if your loss is $50,000 or less, pursue damages in Small Claims Court. If you need a court order to stop the competition, that's an injunction in the Superior Court, and Jonathan refers it to trusted litigation counsel. Delay can hurt an injunction request, so don't wait to get advice.
Need advice on a restrictive covenant?
Jonathan Kleiman drafts and reviews non-compete and non-solicitation agreements for Toronto businesses. Free 30-minute consultation.