Non-Compete Agreements in Ontario: What You Need to Know

Non-Compete Agreements in Ontario: What You Need to Know

Non-compete agreements are increasingly common in Ontario business transactions, yet many business owners and employees misunderstand their enforceability, scope, and implications.

A non-compete agreement (also called a restrictive covenant or non-compete clause) is a contract between an employer and employee, or between a buyer and seller of a business, restricting the employee or departing owner from engaging in competing business activities within a defined geographic area and time period after employment ends or the sale closes.

In Ontario, non-compete agreements are subject to heightened judicial scrutiny – courts will only enforce them if they are reasonable in scope, duration, and geography, and if they protect legitimate business interests.

This detailed guide explores Ontario’s legal framework for non-competes, drafting best practices, and real-world enforcement challenges.

The Legal Status of Non-Competes in Ontario

Ontario courts have historically disfavored non-compete agreements as restrictions on free trade and individual liberty. Unlike many U.S. states where non-competes are routinely enforceable, Ontario courts apply a strict reasonableness test. The landmark case Schrader v. Schrader Inc.

, 2002 CanLII 45126 (ON CA), established that non-competes are subject to common law restraint of trade doctrine, meaning they must be: (1) reasonable in temporal scope (duration), (2) reasonable in geographic scope, (3) reasonable in scope of activities restricted, and (4) necessary to protect legitimate business interests of the employer or buyer.

The burden is on the party seeking to enforce the non-compete to prove reasonableness on all four factors. If a court finds the agreement unreasonable on any dimension, it may refuse enforcement entirely or, in some cases, apply the doctrine of severance to strike the unreasonable portion while enforcing the remainder.

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