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Sukhi Hansra October 12, 2026
In 2021, Ontario banned non-compete clauses in most employment relationships. A lot of business owners read that headline and concluded non-competes are dead. They are wrong in two ways that matter.
First, the ban has exceptions, and the exceptions are exactly where the money is. A non-compete given as part of a sale of a business remains enforceable, and so do non-competes for genuine executives. Second, the ban covers employment. Business-to-business non-competes, whether between a buyer and a seller, between partners, inside a franchise system, or between a company and its contractors in the right structure, live under different rules entirely.
So the real question is rarely whether you can have a non-compete. The real question is whether the one you have would actually hold up, and what it would actually get you if the other side breached it. That second question is the one most firms never answer, and the one we built our approach around.
Courts read restrictive covenants narrowly, and even when a non-compete survives, enforcing one the traditional way means litigation, injunctions, and proving your damages. That is a slow, expensive path where victory can cost more than the harm did.
Our approach is to draft non-competes with liquidated damages clauses, where the agreement itself fixes what a breach costs, in dollars, agreed in advance by both sides. If the clause is done properly, it changes the entire enforcement picture. The other side can read the price of breaching before they breach, which prevents most breaches from ever happening, and if one happens anyway, you are enforcing a defined debt instead of litigating an open question. We have had good success with this structure, and it is the difference between a non-compete that deters and one that decorates.
The ban lives in the Employment Standards Act amendments made by the Working for Workers Act, 2021: employers cannot enter into non-compete agreements with employees, and a prohibited clause is void from the start. Two carve-outs survived, and both are drafted terrain rather than automatic passes:
Courts start from the position that restraints of trade are unenforceable, and the drafter’s job is earning the exception. The threshold factor is justification in the context, because the same restriction can be defensible in one setting and doomed in another, because the justification comes from the relationship it protects. A buyer who paid real money for goodwill has a justification an ordinary employer never has; a shareholders agreement protecting all owners from each other justifies restraints a standalone contract could not. Establishing why this covenant is justified in this transaction is half the drafting.
From there, the clause must protect a legitimate proprietary interest (goodwill you bought, confidential information, customer relationships) and be reasonable in three dimensions at once:
One more rule shapes everything. Ontario courts generally will not 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 one, and the carefully scoped draft is the one with teeth.
The law draws a line between a genuine pre-estimate of damages, which courts enforce, and a penalty, which they will not. Our drafting lives on the right side of that line, because the amount connects to the real economics of the breach (the goodwill paid for, the revenue a departing seller could divert), the clause explains its own logic, and the number scales sensibly with the restriction it protects.
What you get in return changes the covenant’s whole character:
The three get bundled and confused, and they do different jobs:
Part of our first conversation is often moving a client from the clause they asked for to the clause that will actually hold.
| 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 2021 (executives and sale-of-business excepted) | Available, when reasonably drafted | Fully available |
| Business-to-business use | Available under the common-law reasonableness test | Available | Available |
| How courts treat it | Strictest scrutiny; overreach kills the clause | Enforced more readily, because it restrains less | Enforced readily when well-defined |
| Where it earns its keep | Sales of businesses, partnerships, franchises | Nearly everywhere a non-compete no longer can | Every relationship that touches your information |
Suppose you buy a business for $900,000, of which a large share is goodwill, meaning the customer relationships and reputation you are counting on keeping. The seller signs a five-year non-compete within the sale.
Without liquidated damages: eighteen months later the seller opens across town and your revenue dips. To enforce, you litigate: prove the clause is reasonable, prove the breach, and then prove, dollar by dollar and expert by expert, how much of your lost revenue the seller’s competition caused. That damages fight is the longest and most expensive part of the case, and you carry its cost while the harm continues.
With liquidated damages: the agreement already fixed what a breach costs, with an amount tied to the goodwill actually paid for and explained inside the clause itself. The seller read that number before opening across town, which is usually why the shop never opens. If it opens anyway, you are enforcing a defined debt rather than litigating an open question, and every settlement conversation starts from the number instead of from nothing. (Illustrative scenario; real clauses are scaled to the real deal.)
Franchise agreements carry restrictive covenants in both directions in time, with in-term covenants keeping the franchisee committed to the system and post-term covenants protecting the territory and the brand after exit. Franchisors need covenants drafted to survive being enforced against many franchisees over many years; franchisees signing them need to understand exactly what the post-term clause does to their exit options before the disclosure review ends. We act on both sides, though never both sides of the same system.
Non-compete drafting and review is clearly-scoped work, so it is typically flat-fee, and you will have the exact number in writing after a free discovery call. That is our no surprise billing policy. Learn how our fees work.
It depends on the relationship. Ontario banned non-competes in most employment contracts in 2021, with exceptions for executives and for non-competes given as part of a sale of a business. Outside employment, meaning between businesses, partners, or franchisors and franchisees, non-competes remain enforceable when they are reasonable in scope, territory, and duration.
Courts enforce restrictive covenants that protect a legitimate interest and go no further than necessary, meaning a defined territory, a defensible duration, and activities that actually compete. Overreach on any of these and a court can strike the whole clause rather than trim it.
A liquidated damages clause fixes, inside the agreement, what a breach will cost in dollars. Instead of litigating to prove your losses after a breach, you enforce an amount both sides agreed to in advance. If the clause is drafted properly, it deters the breach and simplifies enforcement; if it is drafted as a penalty, courts will not enforce it. The drafting is the whole game.
A sale-of-business non-compete is enforceable in Ontario, but its scope is negotiable, and sellers regularly agree to broader restrictions than the deal requires. Territory, duration, and the definition of “competing” all deserve real negotiation before you sign.
A non-compete restrains someone from working in a competing business at all. A non-solicitation clause only bars them from taking your customers or poaching your staff. Because non-solicitation restrains less, courts enforce it more readily, and it often delivers most of the real protection lawfully.
In Ontario, usually the whole clause fails. Courts generally refuse to rewrite an overreaching covenant down to a reasonable one, so drafting past what you can defend does not buy extra protection. It risks all of it.
The statutory ban covers employees. A genuine independent-contractor relationship sits outside it, but two cautions apply. A contractor who is really an employee in substance may be treated as one, and the common-law reasonableness test still governs the clause either way. The relationship’s paperwork and its reality both matter.
Reviewed by Sukhi Hansra, Business and Franchise Lawyer at Hansra Law.
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