Ontario court clarifies prohibition on employment non-competition clauses

February 08, 2022 − by Matthew Curtis − in Employment and Labour, General, Ontario − Comments Off on Ontario court clarifies prohibition on employment non-competition clauses

An Ontario court has recently confirmed that the prohibition on post employment non-competition agreements in Ontario does not void non-competition agreements entered into prior to October 25, 2021, creating more certainty to employers as to how this prohibition will be applied by the courts and the Ministry of Labour moving forward in Ontario.

As a refresher, the Ontario government introduced Bill 27, the Working for Workers Act (the Act), on October 25, 2021. The Act includes a general prohibition on post-employment non-competition agreements, with some limited exceptions such as for senior executives and in connection with a sale of a business.

The case and decision

In Parekh et al v. Schecter et al, 2022 ONSC 302, the Plaintiff dental corporations sought an injunction against a former employee in order to prevent him from practicing dentistry at another business.

In 2020, the Defendant’s son sold a dental practice where he and the Defendant worked to the Plaintiffs. As a condition of the sale, the Defendant entered into an Association Agreement (a type of employment agreement), which contained a non-competition covenant. The non-compete covenant restricted employment anywhere within a five kilometre radius of the dental practice for a period of two years following the end of the Defendant’s employment with the dental practice.

However, in October of 2021, less than two years after the sale, the Defendant resigned from practicing at the Plaintiffs’ dental corporation and began practicing at a competing dental corporation within a five kilometre radius of the Plaintiff’s dental practice. The Defendant took the position that, due to the new ban on non-competition agreements enacted through the Act, the non-competition covenant should not be enforced. The Defendant argued that the ban should apply retroactively.

However, the court elected to enforce the non-competition covenant. The court found that there was “clear legislative intent to make the ESA amendments applicable as of October 25, 2021, and not earlier”, and accordingly the ban on non-competition agreements introduced by the Act did not apply in this case.

Key takeaway

This case confirms the ban on non-competition agreements does not apply retroactively, and only affects employment non-competition agreements entered into after October 25, 2021. This case is also aligned with the Interpretation Guide commentary recently published by the Ontario Ministry of Labour which states:

“Employers are prohibited (with some exceptions), from entering into a non-compete agreement with an employee. “Non-compete agreement” is defined in the ESA.  This prohibition does not apply to non-compete agreements entered into before October 25, 2021.”

If your business has concerns about a non-competition agreement, please reach out a member of the Dentons Employment and Labour group who would be happy to help.

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