November 7, 2024
There was a lot of publicity when Ontario amended the Employment Standards Act to make certain restrictive covenants unenforceable. This has created some confusion, with people mistakenly believing that ALL restrictive covenants are unenforceable in court.
To begin to understand this, we must first note that the ban only applies to employment contracts. So, a contract between two corporations to keep trade secrets secret is an example of a covenant that is likely to be enforced.
The non-compete agreements banned by the Act are defined in the Act to be:
an agreement, or any part of an agreement, between an employer and an 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.
The ban only covers “non-compete agreements”. Other provisions in employment contracts, such as confidentiality clauses, or non-solicitation agreements, may still be enforceable.
In addition, the Act limits the reach of the ban. Not banned are:
- Agreements entered into as part of the sale of a business;
- Agreements entered into with “executives” which are defined as:
any person who holds the office of chief executive officer, president, chief administrative officer, chief operating officer, chief financial officer, chief information officer, chief legal officer, chief human resources officer or chief corporate development officer, or holds any other chief executive position”.
So, the answer to our title question is that restrictive covenants are sometimes enforceable.
To make this more confusing, restrictive covenants that do not fall into the ban under the Act may still not be enforced by a court if they are an unreasonable restraint of trade, or unfairly limit the ability of the parties to earn a living, or otherwise inequitable.
How do you know whether you have an enforceable agreement?
How do you draft an agreement which will be enforceable?
There is never absolute certainty about the enforceability of a restrictive covenant unless you go to court and have a judge give you a ruling. This is not practical for agreements unless there is an alleged breach.
The practical solution is to have the clause drafted by a lawyer knowledgeable about restrictive covenants. Or, if you are the person who is the subject of the covenant, get legal advice, preferably before you sign it.
The corporate and employment lawyers at Weilers LLP are knowledgeable and experienced in drafting covenants which are likely to be enforced. Or, if you are a party to ana existing contract which contains a restrictive covenant, we are here to give you a knowledgeable opinion as to whether or not a court is likely to enforce the clause.
If we may be able to help you, give us a call and see if we are the right lawyers for you.