Ontario Non-Compete Agreements: “Not Dead Yet!”

The Ontario government’s decision to “legislate away” non-competition agreements for Ontario employees has been the subject of a substantial amount of commentary in the business and legal press. As a result of the Ontario Working For Workers Act, 2021, which came into force on December 2, 2021, there are now substantial limits on the ability to sign enforceable agreements which limit post-employment competition.  In particular, the Act prohibits employers from entering into non-compete agreements after October 25, 2021, except in cases involving executive employees or contracts negotiated in the context of the sale of a business.

A recent Ontario court decision confirms, however, that the Act does not affect relevant agreements entered into prior to October 25, 2021.

In its ruling in Parekh v Schecter, 2022 ONSC 302, the Ontario Superior Court of Justice reviewed an agreement which had been agreed to in 2020, well before the Act became operation.

The relevant agreement was negotiated in the context of the sale of a dentistry practice. One of the dentists who was a party to the commercial negotiations, Dr. Schechter, continued to work in the relevant practice as part of an agreed transition period. There were related post-employment restrictions which were included as part of the transaction. This included a non-competition provision which prevented Dr. Schecter from operating a dental practice within 5 km of the relevant business.

After the closing of the sale of the practice, Dr. Schechter resigned and started to work at another dental office which was within the restricted area.

The purchasers sued and sought an injunction which attempted to enforce the restrictive covenants which they said were enforceable as against Dr. Schechter.

As a preliminary basis, counsel to Dr. Schechter argued that the Act applied and made the non-compete provisions void.

In his reasons which dismissed this preliminary argument, Mr. Justice Sharma provided a detailed review of the Act as it relates to non-competition provisions. In this regard, the starting point is that, absent specific provisions in the statute, legislation is generally interpreted to come into effect on the date when it receives Royal Assent. In the case of the Act, the Ontario legislature adopted clear rules which stipulate that the amendments regarding non-compete provisions took effect on October 25, 2021. As a result, Justice Sharma said it was clear that the Act did not apply to void the non-competition clause in Dr. Schechter’s agreement, which had been entered into on January 20, 2020.

The Parekh decision also includes the following helpfully summary of the relevant provisions in the Act regarding non-competition provisions: “…it cannot be said the provisions with respect to the non-compete clause applies to contracts of employment with non-compete clauses entered into before October 25, 2021.”

In the particular case, the Court then proceeded to find that the relevant provision was enforceable based on an analysis under the common law as applied in Ontario.

The ruling is very helpful to employers, since it essentially confirms that a preliminary objection to pre-October 25, 2021 agreements will fail. There is no clarity that any such “old agreements” are “not dead yet”, and instead need to be reviewed based on the applicable common law. That of course still provides scope for disputes and litigation, but it does help to remind employees that they cannot simply disregard an agreement because of the Act. There are likely to be future cases in the coming months which will explore related issues, including the fact that many organizations may soon see a mixture of agreements within their employee population, all tied to start date. The decision reinforces the importance of giving close consideration to the available options to protect the employer’s business interests.