In today’s fast-paced world of modern business, protecting your company’s interests is paramount. As such, many Ontario business owners and employers may look to non-compete agreements to safeguard their business and maintain a competitive advantage. While this legal tool can be effective in some cases, a non-compete agreement is not always appropriate, nor will it always be upheld by a court. Therefore, employers and business owners need to understand the legal considerations associated with non-compete agreements and other less restrictive agreements and provisions.

Whether you are a seasoned entrepreneur or a fledgling startup, this blog will provide insights to equip you with the knowledge needed to protect your business from potential threats posed by departing employees.

What Is a Non-Compete Agreement?

A non-compete agreement is a restrictive covenant, often presented as a provision in an employment contract that applies to the employee and employer. Non-compete agreements are designed to prevent former employees from using proprietary information to compete against their former company.

Each non-compete agreement is unique depending on the type of industry it applies to. Generally, non-compete agreements will contain three key elements, namely:

• The scope and nature of the competition to prevent an employee from working with a business competitor;
• The specific geographical location to which the non-compete applies; and
• The duration of the non-compete agreement.

The Intentions Behind Non-Compete Agreements

Employers and business owners may seek to use non-compete agreements for various reasons, such as:

• Protecting customer relationships by preventing an employee from taking clients or customers with them when they leave the business; and
• Protecting trade secrets and confidential information by preventing employees from disclosing or implementing such proprietary information at a competing business.

Employers may feel pressure to retain high-level employees in today’s competitive employment market. Therefore, including a non-competition clause can strongly deter employees from leaving. However, the same clause can also be a deterrent to prospective employees during the recruitment process.

Are Non-Compete Agreements Enforceable in Ontario?

Non-compete agreements have been generally prohibited in Ontario since October 25, 2021. Section 67.1 of the Employment Standards Act provides that any agreement between an employer and employee that prevents an employee from engaging in any project, work, business, profession, occupation or other activity in competition is prohibited. The courts have found that non-compete agreements are unfair, given their negative impact on past employees’ abilities to make a living. Therefore, while an employee may have signed an employment contract containing a non-compete agreement, the validity and enforcement of such agreement can be questioned.

However, if you entered a non-compete agreement before October 25, 2021, the agreement may still be valid and enforceable.

Exceptions to the Prohibition of Non-Compete Agreements in Ontario

There are some limited exceptions to the general prohibition against non-compete agreements. For instance, a non-compete agreement with an executive employee may be permitted. Non-compete agreements relating to business sales may also be valid to prevent the seller of the business from entering into competition with the company if the seller becomes the buyer’s employee.

Alternative Methods of Protecting Your Business and Trade Secrets

While non-compete agreements are primarily prohibited, there are alternative measures that employers can take to ensure their business interests remain protected. For instance, a non-disclosure agreement prevents employees from sharing sensitive information about the business’s proprietary information and processes.

A non-solicitation agreement, on the other hand, is considered a less restrictive covenant that may also align with the employer’s legitimate business interest. This type of agreement stops a departing employee from actively pursuing clients and customers with the intention of bringing them along to their new place of employment.

Important Takeaways For Business Owners and Employers

As a business owner or employer, safeguarding the interests of your company is not only prudent but often essential for survival in today’s competitive landscape, regardless of the industry. While it may be tempting to utilize a non-compete agreement, it is crucial to understand that the courts do not uphold most non-compete agreements in Ontario. If you have entered into a non-compete agreement that is challenged by an employee, the burden of proving that the agreement is reasonable and unambiguous is on the employer seeking to enforce it.

If you have questions about non-compete agreements or want to learn more about how to protect your business, it is important to proactively consult with a trusted business and employment lawyer who can advise you of your options and help you draft a comprehensive and enforceable employment agreement.

Contact Windsor’s Trusted Lawyers at Willis Business Law for Advice on How to Protect Your Business Interests

If you are a business owner or employer who needs to protect your trade secrets, contact the skilled Windsor business and employment lawyers at Willis Business Law for comprehensive legal advice on contracts and employment agreements. Our legal team will help you strike the right balance between protecting your business interests and respecting your employees’ rights while ensuring your contract remains compliant and enforceable under the applicable laws. To learn more about how we can assist you in your business endeavour, contact us online or call us at 519-945-5470.