Effective October 25, 2021 employers are prohibited from entering into employment contracts or other agreements with an employee that include a non-compete agreement.
A non-compete agreement is defined as an agreement, or any part of an agreement, between an employer and employee that prohibits the employee from engaging in any business, work, occupation, profession, project or other activity that is in competition with the employer’s business, after the employment relationship between the employee and the employer ends.
Time-limited or geographically restricted
An agreement, or part of an agreement, may be considered a non-compete agreement whether or not it is time-limited or geographically restricted.
- An agreement that prohibits the employee from engaging in work that is in competition with the employer’s business for six months after the employment relationship ends is a non-compete agreement. If the agreement has no expiry date it is still a non-compete agreement.
- An agreement that prohibits the employee from engaging in work that is in competition with the employer’s business after the employment relationships ends within 100 km of the employer’s workplace is a non-compete agreement. If the agreement has no geographic restriction it is still a non-compete agreement.
Before, during and after employment relationship
Entering into non-compete agreements is prohibited before the employment relationship begins, during the employment relationship and after it ends.
Examples of prohibited non-compete agreements include non-compete agreements entered into by:
- a potential employer and an applicant for employment before an employment relationship begins
- an employee with their employer during the employment relationship
- a former employee and their former employer after the end of the employment relationship
There are two exceptions to non-compete agreements being prohibited under the ESA:
The first exception applies where all the following occur:
- there is a sale or lease of a business or a part of a business that is operated as a sole proprietorship or a partnership
- immediately following the sale, the seller becomes an employee of the purchaser
- as part of the sale, the purchaser and seller enter into an agreement that prohibits the seller from engaging in any business, work, occupation, profession, project or other activity that is in competition with the purchaser’s business after the sale
The second exception applies to executives:
- The ESA does not prohibit employers from entering into non-compete agreements with executives. An executive is any person who holds the office of:
- chief executive officer
- chief administrative officer
- chief operating officer
- chief financial officer
- chief information officer
- chief legal officer
- chief human resources officer
- chief corporate development officer
- any other chief executive position
Employees may have a greater right under their employment contract or the common law. If you have questions about the enforceability of a non-compete agreement that applies to either of these exceptions, please talk to a lawyer.
Non-compete agreements entered into before October 25, 2021
The ESA does not prohibit non-compete agreements that were entered into before October 25, 2021. However, employees may have greater rights under the common law. If you have questions about the enforceability of a non-compete agreement that was entered into before October 25, 2021, please talk to a lawyer.
Non-solicit and non-disclosure agreements
A non-solicit agreement in an employment contract prohibits an employee from soliciting, or actively pursuing, clients, customers, vendors, business partners or other employees of their employer, during the employment relationship or after the employment relationship has ended. The non-solicit agreement often, but not always, applies only for a specified period after the end of the employment relationship.
A non-disclosure agreement in an employment contract prohibits an employee from sharing confidential company information and processes.
The ESA prohibits non-compete agreements. The ESA does not prohibit non-solicit agreements or non-disclosure agreements. However, employees may have greater rights under the common law. If you have questions about the enforceability of non-solicit and non-disclosure agreements, please talk to a lawyer.
The proper terminology may not always be used in agreements. When determining whether an agreement falls within the definition of a non-compete agreement, the substance of the agreement is what matters, not the words that are used.
Employees, applicants for employment and former employees can file a claim with the Ministry of Labour, Training and Skills Development if they believe that they entered into a prohibited non-compete agreement on or after October 25, 2021. They can also file a claim if they believe they were penalized because they refused to enter into a prohibited non-compete agreement. This is considered a reprisal.
The ESA does not prohibit employees and employers from resolving disputes about the enforceability of non-compete agreements in the courts.