Background
On May 6, 2026, the federal government introduced Bill C-31, the Budget 2025 Implementation Act, No. 2, in the House of Commons. If passed in its current form, this legislation will fundamentally reshape post-employment restraints for federally regulated industries across Canada. The bill seeks to amend the Canada Labour Code (the “Code”) by adding Division XI.1, which establishes a comprehensive prohibition on non-compete clauses and other employment-related restrictions. This move follows a legislative trend seen in Ontario, which remains the only other Canadian jurisdiction with a statutory ban on such clauses.
The Law
The proposed amendments to the Code center on several key definitions and prohibitions.
- The Non-Compete Clause: Any term or condition that prohibits an employee from engaging in business, work, or professional activity that competes with the employer’s federal business after the employment relationship ends.
- Other Employment-Related Restrictions: This category remains unsettled, as the government intends to define specific classes of prohibited restrictions through future regulations.
- Prohibition on Agreement and Imposition: Employers are not only barred from agreeing to these clauses with employees or trade unions but are also prohibited from imposing them, including by inducing an employee to agree to one.
- Voidness as a Consequence: Any prohibited non-compete clause or restriction will be considered void (or null in Quebec).
- Anti-Reprisal Protections: Employers are expressly prohibited from retaliating against employees who refuse to agree to a non-compete clause, protecting them from dismissal, discipline, or adverse promotion decisions.
Key Features of the Proposed Ban
Beyond prohibiting most non-compete agreements, Bill C-31 introduces several procedural changes that strengthen employee protections. In any dispute, the employer bears the burden of proving that a contractual provision is not a prohibited non-compete clause or is otherwise valid. The bill also includes a one-year transitional period during which existing non-compete agreements will remain enforceable before becoming void once the prohibition takes effect. In addition, the legislation grants the government authority to establish further exemptions for specific classes of employees where the potential harm to employers is determined to outweigh the harm to those employees.
Exemptions
The prohibition on non-compete agreements under Bill C-31 is not absolute, as the legislation provides two narrowly defined exceptions:
- A non-compete remains permissible where an individual sells their business to an employer and subsequently becomes an employee of that employer, provided the business is, or becomes, a federally regulated undertaking.
- The bill also exempts chief executive officers and certain senior executives who report directly to the CEO, including positions such as president, chief operating officer, chief financial officer, chief human resources officer, chief information officer, chief technology officer, and chief legal officer. This exemption is limited to managerial employees who are the sole holders of those specified executive positions.
Takeaways
While Bill C-31 remains in the legislative process and is subject to change, federally regulated employers can begin preparing by reviewing their existing employment agreements, executive contracts, and equity plans to identify non-compete or similar provisions that may become unenforceable. In addition, organizations should review their executive structures to ensure that C-suite positions are clearly defined and fall within the bill’s narrow senior executive exemption. Finally, employers should continue monitoring the development of regulations that will clarify the scope of prohibited employment-related restrictions and establish the legislation’s coming-into-force date.
Employees should be aware that the proposed legislation includes anti-reprisal protections for those who refuse to agree to a non-compete clause. Notably, the ban does not affect other restrictive covenants such as confidentiality and non-solicitation obligations, which remain enforceable.
Contact JPAK Employment Lawyers for more information on how Bill C-31 may impact your organization’s employment agreements and restrictive covenants.