Toronto business and franchise lawyer Sukhi Hansra, JD, MBA, of Hansra Law explains what Ontario’s non-compete ban actually covers, which non-compete agreements still work, and what separates an enforceable covenant from an expensive piece of paper.
Suppose you are selling the business you spent fifteen years building, and the buyer’s lawyer sends over a five-year non-compete for you to sign. You remember reading that Ontario banned non-competes back in 2021, so you wonder whether the clause even matters. It matters a great deal, because the ban you read about almost certainly does not apply to your deal.
Are non-compete agreements enforceable in Ontario? It depends on the relationship. Ontario banned non-competes in most employment contracts as of October 25, 2021, with exceptions for executives and for sales of a business. Outside employment, meaning agreements between businesses, partners, shareholders, or a buyer and seller, non-competes remain enforceable when they are reasonably drafted.
This guide walks through what the ban covers, what survived the ban, and what makes the surviving covenants actually hold up.
Author: Sukhi Hansra, JD, MBA, Business and Franchise Lawyer, Hansra Law. Publish date: August 16, 2026. Last verified: August 16, 2026.
What Ontario’s non-compete ban actually covers
Ontario’s ban lives in the Employment Standards Act, 2000, through amendments made by the Working for Workers Act, 2021. Since October 25, 2021, employers cannot include a non-compete clause in an agreement with an employee, and a prohibited clause is void from the start. The province publishes its own plain-language guide to the ban, and that guide is written for employees, which tells you who the ban was designed to protect.
Here is the part most business owners miss. The ban governs the employment relationship. It says nothing about the agreements businesses sign with each other, and those agreements are where most of the valuable non-competes in Ontario actually live.
The two exceptions that survived the ban
The Employment Standards Act carves out two situations where an employee non-compete remains lawful, and both are narrower than they first appear.
- The sale-of-business exception. When someone sells a business, or part of one, and becomes an employee of the buyer immediately afterward, a non-compete given as part of that sale remains enforceable. The exception exists because the buyer paid for the goodwill, and a seller who opens across the street takes the goodwill back. The clause must genuinely belong to the sale, so where you put the covenant and how you paper the employment both matter.
- The executive exception. “Executive” has a statutory definition covering chief-level officers and presidents. The title on a business card does not decide the question. Renaming a sales manager “Chief Revenue Officer” to keep a non-compete is exactly the kind of move a court will look past, because courts assess substance rather than labels.
Business-to-business non-competes were never banned
This is the point the headlines skipped, and the reason the 2021 ban matters far less to business deals than most owners assume. The ban covers employment relationships. Non-competes between businesses were never banned at all, because the Employment Standards Act does not reach them. They answer instead to the common law, which has governed restrictive covenants for over a century.
That means every one of the following still works, when drafted properly:
- A seller’s non-compete in a business purchase. If you are buying a business, the seller’s covenant is often the most valuable single clause in the transaction, because you are paying for customer relationships the seller could otherwise walk away with.
- A seller’s obligations on the way out. If you are selling your business, the buyer will demand a non-compete, and the scope you agree to determines what work you can do for years. Sellers routinely concede more than the deal requires.
- Covenants in a shareholders agreement. Owners can bind each other so that a departing shareholder cannot take everything the company taught them and start again next door. Our shareholders agreement work treats these covenants as standard equipment.
- Franchise system covenants. Franchise agreements carry in-term and post-term covenants that protect the territory and the brand, and Ontario’s employee ban never touched them.
- Partnership and joint-venture covenants. The same logic applies whenever two businesses combine effort and one could later compete using what the collaboration built.
What about non-competes signed before October 25, 2021?
The ban was not retroactive. An employee non-compete signed before October 25, 2021 is not automatically void under the statute, and the old common-law rules still govern that agreement. Before you take comfort in that as an employer, you should know what the common law already did to employee non-competes. Courts treated them as presumptively unenforceable restraints of trade and refused most of them, because an ordinary employer rarely has an interest strong enough to justify barring someone from working. A pre-2021 employee non-compete is a weak card, and the ban mostly formalized what courts were already doing.
Do non-competes apply to independent contractors?
The statutory ban covers employees, so a genuine independent contractor sits outside it. Two cautions come with that sentence. First, a contractor who works like an employee may be treated as an employee in substance, and the label on the contract will not save the clause. Second, the common-law reasonableness rules govern contractor covenants either way, so escaping the ban only wins you the right to fight the older, harder battle.
What makes a business non-compete enforceable?
Courts start from the position that restraints of trade are unenforceable, and the drafter’s job is to earn the exception. A covenant survives when the party imposing the covenant can show a legitimate interest worth protecting, such as the goodwill a buyer paid for, and when the restriction is reasonable in three dimensions at once.
- Activity. The clause should restrain the actual competing business, and nothing more. A clause barring a seller from “any business activity” fails, while a clause barring the specific business sold can stand.
- Territory. The restriction should match the market the business actually serves. A Canada-wide restriction on a business that serves the GTA invites a court to strike the clause.
- Duration. The period should be long enough to protect the transition and short enough to defend. Sale-of-business covenants sustain longer periods than anything employment-related ever could.
One more rule shapes all three dimensions. Ontario courts generally refuse to rewrite an overreaching covenant down to something reasonable. Overreach usually kills the whole clause rather than trimming it, which means the aggressive-looking draft is frequently the worthless draft, and the carefully scoped draft is the strong one.
You can run a first check yourself before any lawyer gets involved. Take the draft covenant and write down three things beside it, being the exact activity of the business at stake, the geography where that business genuinely earns revenue, and the time a buyer would realistically need to secure the customer relationships. Then compare each of the three against what the clause actually says. Everywhere the clause reaches beyond your three answers is a place a court could refuse to enforce the whole thing, and a place worth negotiating before you sign.
Non-compete, non-solicitation, or NDA?
The three get bundled together and confused, and they do different jobs. Choosing the right one matters more since the ban, because in many situations a well-drafted non-solicitation clause now delivers most of the protection an employee non-compete once did, lawfully.
| Non-compete | Non-solicitation | NDA / confidentiality | |
|---|---|---|---|
| What it restrains | Working in a competing business at all | Taking your customers or poaching your staff | Using or disclosing your information |
| Employee use in Ontario | Banned since October 25, 2021, except executives and sales of a business | Available, when reasonably drafted | Fully available |
| Business-to-business use | Available under the common-law reasonableness test | Available | Available |
| How courts treat the clause | Strictest scrutiny, and overreach kills the clause | Enforced more readily, because the clause restrains less | Enforced readily when the definitions are clear |
For the information-protection column, a properly built non-disclosure agreement faces no Ontario ban at all, and confidentiality obligations belong in nearly every business relationship regardless of what happens to the covenant beside them.
The enforcement problem, and the clause that fixes it
Now for the question almost nobody writing about non-competes answers. Suppose your covenant is enforceable. What do you actually get when the other side breaches?
The traditional answer is litigation, meaning an injunction application, a fight over reasonableness, and then the longest part, proving in dollars how much of your lost revenue the breach caused. That damages fight can cost more than the harm did, which is why a technically enforceable covenant can still be a practical failure. Winning slowly and expensively is a poor remedy for a business bleeding customers today.
In our own practice, we draft non-competes with liquidated damages clauses, where the agreement itself fixes what a breach costs, in dollars both sides agreed to in advance. If the clause is built as a genuine pre-estimate of the harm rather than a penalty, courts will enforce the number. The other side reads the price of breaching before they breach, which prevents most breaches from ever happening, and we have had good success with this structure. Our non-compete agreements page walks through how the drafting works and includes a worked example of what the clause changes.
Are non-competes banned in the rest of Canada?
No other province has copied Ontario’s statutory ban so far. Elsewhere in Canada, employee and business non-competes alike are governed by the common law, which applies the same reasonableness scrutiny described above and treats employee non-competes with particular skepticism. If your agreement spans provinces, the governing-law clause deserves real attention, because Ontario’s statute draws a line the other provinces have not drawn.
Frequently asked questions
How long can a non-compete last in a business sale?
Longer than most people expect, because the buyer’s purchased goodwill justifies a longer protection period than employment ever could. Multi-year covenants are common in Ontario business sales, and the defensible length depends on the industry, the customer cycle, and the price paid. The duration still has to survive the reasonableness test, so the number should be chosen, never defaulted.
What happens if someone breaches a non-compete?
The covenant holder can seek an injunction to stop the competing activity and damages for the harm caused. Proving those damages is usually the longest and most expensive part of the case. Agreements drafted with a liquidated damages clause replace that fight with a defined amount, which is why we build them that way.
Can my employees still sign non-solicitation and confidentiality agreements?
Yes. Ontario’s ban covers non-compete clauses, and it does not prohibit reasonably drafted non-solicitation clauses or confidentiality obligations. For most employers, a strong non-solicit paired with a real confidentiality agreement now does the protective work the old non-compete pretended to do, with a far better chance of being enforced.
Is a non-compete in a shareholders agreement enforceable?
Generally yes, when the covenant is reasonably scoped, because the ban never reached agreements between owners. A shareholders agreement protecting all owners from each other carries a justification an ordinary employment contract never has, and courts recognize the difference.
Conclusion
Although the rules above cover the main ground, restrictive covenants turn on drafting details, and the gap between a covenant that deters and a covenant that fails is measured in clauses. The 2021 ban changed who can sign a non-compete, and it changed nothing about how carefully the surviving ones need to be built. A good first step is to speak with someone who drafts and negotiates these covenants regularly. You can schedule a complimentary discovery call with our firm, or call 416-580-0345.
