Ontario’s Bill 27: What It Means For Employers and Employees

Ontario To Ban Non-Compete Agreements

On October 25, 2021, Ontario introduced Bill 27, Working for Workers Act, 2021, which if passed, would ban employers from entering into non-compete agreements with their employees.  

Non-compete agreements prohibit a departing employee from joining a competitor, often, for several months following the employee’s departure, and in some cases, for years.  These restrictions can   effectively sideline an individual from their profession and their industry for extended periods of time, rendering them unemployable or without income.   

Non-compete agreements are not without controversy in Canadian employment law. Employers frequently use non-compete agreement to protect their business interests.  While employers have frequently asserted that they will suffer irreparable harm if a former employee joins a competitor, in reality, most employers are unable to establish any real harm is suffered at all.   Further, some employers have sought to apply them broadly to all workers, including those who pose little to no competitive threat.  

As it is, non-compete restrictions are very difficult to enforce in the courts.  In the majority of cases, courts have refused to enforce them at all.   However, individuals often comply out of fear of being dragged through an expensive lawsuit.  The threat of a lawsuit alone is often enough to intimidate the employee into compliance.  

A complete ban on the practise is a welcome move for employees.    It gives employees more freedom to change employers within the same industry, increases their bargaining strength, and on balance, it levels the playing field between employees and employers.   The ban applies to all types of workers, including top executives, persons with access and knowledge of sensitive or proprietary data, and employees who may be considered fiduciaries to the Company. 

There is a narrow exemption from the ban in the context of a sale of business. Specifically, the purchaser of a business can still craft agreements that prohibit the seller from competing with the purchaser’s business for a period following the sale, including if the seller becomes an employee of the purchaser.   

Ontario is not the first jurisdiction to introduce these bans.  Some US states already prohibit the use of worker non-compete agreements, including California, Oklahoma, and North Dakota.  Other US states limit their use to certain types of workers.  In July 2021, President Biden signed an executive order to curtail the practise of non-compete agreements. 

Non-Solicitation and Other Restrictions

Employers are not without protection.  Employers can still enter into non-solicitation agreements that prohibit employees from soliciting the employer’s  clientele, prospective clientele, or its employees.  Employers can further enter into agreements that prohibit the use or disclosure of the employer’s confidential information and intellectual property.  

Key Takeaways

If the legislation is passed, employers will need to review and update their employment contracts to remove any offending provisions.

The legislation is silent on the treatment of existing non-compete agreements, however, it will likely have the effect of nullifying past non-compete agreements as being contrary to legislation.  

If Bill 27 is passed, employers should either update those contracts or notify employees who have already signed non-compete agreements that those restrictions are being expressly waived.  

Do you have a question about an existing non-compete agreement?  Contact the labour and employment law experts at JPak Employment Lawyers at 416.583.1920 or email us at: info@jpakemploymentlaw.com 

  

*This article is for informational purposes only and is not intended to be legal advice.  If you have questions or need legal advice, please contact us to arrange a consultation.

By |2021-11-09T16:10:00-04:00November 9th, 2021|Article, Article-All|0 Comments

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