By Simcha Walfish
While these agreements are almost never legally enforceable, employers often use them to intimidate their workers. These agreements generally say that a worker can’t seek opportunities at other companies in the same field for a period of time after they leave their current job, and this might stop many of them pursuing exciting opportunities that would help them grow professionally. This isn’t fair to workers who are eager to advance their careers and this isn’t fair to the thousands of small start-ups we have in Ontario who are starved for talent. This change would help them find workers with the skills they need to scale up, grow and prosper.
The legislation amended the Employment Standards Act (ESA) to ban non-compete clauses, except for executives and in certain circumstances related to the sale of a business. It prohibited employers from entering into employment contracts with non-compete clauses and stipulated that those agreements are void.
Are agreements signed before October 25, 2021 void?
The ban on non-compete agreements was made effective retroactively to October 25, 2021, the day the legislation was introduced in the legislature. Early interpretations of the prohibition have therefore concluded that it only applies to agreements signed on or after October 25, 2021. The Ministry of Labour has taken the position in several publications that the new legislation “does not prohibit or void non-compete agreements that were entered into prior to October 25, 2021.”
The same conclusion was reached in Parekh et al v Schecter et al, where the Superior Court concluded that, because the Legislature specifically chose October 25, 2021, as the date for these provisions to come into force, they did not apply to agreements signed before that date.
However, there are multiple potential arguments that all non-compete clauses are now void for workers governed by the ESA.
First, the new ESA provisions themselves do not refer to an effective date of October 25, 2021. It is questionable to rely heavily on the date of coming-into-force when interpreting legislation that is meant to provide minimum standards that apply to all employees. The Legislature could have referenced an effective date in the legislation if that were its intention.
Second, the ESA is meant to provide minimum standards that apply to all employment contracts. As the employee argued in Parekh, the ESA should not be interpreted in a way that would create different rights for different employees, based on when they signed their contract.
Third, it is not unusual for rights under the ESA to change during the life of an employment contract, which can last decades. When the ESA is amended, unless the legislation provides for a transitional period, it is the current ESA that governs employment agreements, not the version of the ESA as it was in force at the time of the signing of an agreement. Workers do not need to undertake an archaeological study of their contract, to determine what version of the ESA applies to each clause.
Ultimately, as the Minister stated, even before this legislative change, non-compete clauses were rarely enforceable. Therefore, regardless of whether future decision-makers follow Parekh or take a different approach, non-compete clauses are likely to continue to be found void.
If you have questions or concerns about whether your non-compete clause is valid or any other questions about your employment, we are here to help. Please call 613–567–2901 or email [email protected] to consult one of our experienced employment lawyers.
[Please note that this article is for informational purposes only, and does not constitute legal advice, which cannot be given without consideration of your individual circumstances.]