Non-Compete and Non-Solicitation Agreement | ESA s.67.2

A non-compete and non-solicitation agreement bundles two distinct restrictive covenants into one instrument, and the distinction matters more in Canada than almost anywhere else. The non-competition covenant bars the former worker from carrying on or joining a competing business within a stated geographic area for a stated time. The non-solicitation covenant is narrower: it stops the person from poaching the employer's clients, customers, suppliers or staff, but leaves them free to compete generally. Courts treat the two very differently, and that difference often decides whether you have an enforceable document or a worthless one.

Canadian judges start from the position that any restraint of trade is contrary to public policy and void unless the party seeking to enforce it proves the restraint is reasonable. A non-solicitation clause, because it interferes far less with a person's ability to earn a living, clears that bar much more readily than a non-compete. A blanket non-compete will rarely be enforced where a well-drafted non-solicitation clause would have protected the same interest. This is why our template lets you rely on the non-solicit alone in most employment situations and reserve the non-compete for the narrow cases where it genuinely holds up, such as the shareholder and partnership arrangements covered by our corporate agreements. Treating the two covenants as interchangeable is the most common drafting error we see.

Restrictive covenants in Canada sit at the intersection of common-law doctrine and, increasingly, statute. The foundational rule comes from the Supreme Court of Canada in Elsley v. J.G. Collins Insurance Agencies Ltd., which set out the three questions a court asks: does the employer have a proprietary interest worth protecting, are the temporal and geographic limits reasonable, and is the covenant otherwise contrary to the public interest by restricting competition generally. A restraint that fails any branch is struck down. The Court tightened this further in Shafron v. KRG Insurance Brokers (Western) Inc., holding that an ambiguous covenant is automatically unreasonable, and that judges will not rewrite an overbroad clause to save it. The phrase "Metropolitan City of Vancouver" was enough ambiguity to sink the entire covenant, and the employer recovered nothing.

The statutory overlay is newer and decisive. Ontario became the first province to legislate when its Working for Workers Act, 2021 added section 67.2 to the Employment Standards Act, 2000, prohibiting employers from entering into non-compete agreements with employees. Any non-compete entered into with an Ontario employee on or after 25 October 2021 is void, with only two exceptions: where the worker is a genuine executive (C-suite officers), and where the covenant arises from the sale of a business and the seller stays on as an employee. The latter sale-of-business context is where the Supreme Court in Payette v. Guay inc. applied a more lenient standard, because the parties are negotiating goodwill at arm's length rather than facing the power imbalance of an employment relationship. Importantly, the Ontario ban touches only non-competes, so confidentiality and non-solicitation clauses remain available even for rank-and-file staff. The provincial regulator publishes its own plain-language explanation in the Government of Ontario guide to non-compete agreements under the ESA, which is worth reading before you rely on any executive exemption.

The classic trigger is hiring someone who will hold the keys to your client relationships. A sales lead, an account manager, a senior consultant: these are the roles where a departing worker can walk straight to a competitor with a book of business in their head. Here a non-solicitation covenant does the heavy lifting, because it protects the client list without the heavy-handed reach of a non-compete that a court would likely refuse to enforce. Most employers in this situation overprotect and end up with nothing.

The second scenario is engaging an independent contractor with access to proprietary methods or confidential pricing, where you want to stop them taking what they learned to a direct rival. Contractors are not "employees" for the purposes of Ontario's section 67.2 ban, which gives slightly more room for a reasonable non-compete, though the Elsley reasonableness test still applies in full and ambiguity is still fatal. A third common use is protecting your existing team: a non-solicitation of employees clause stops a departing manager from hollowing out a department by recruiting former colleagues, a restriction courts treat sympathetically because it protects workforce stability rather than suppressing competition.

The edge case worth flagging is the sale of a business. When a vendor sells their company and stays on, a non-compete tied to that sale is judged under the gentler Payette standard and is far more likely to survive, even in Ontario, because it falls within the statutory exception. If your restriction is really about protecting goodwill in a share or asset purchase, draft it inside the sale agreement, not the employment contract. A second edge case: federally regulated workers (banks, telecoms, interprovincial transport) fall under the Canada Labour Code rather than provincial ESAs, so the Ontario non-compete ban does not reach them, though the common-law reasonableness test still does.

• The definition of the restricted business and activities is drafted to the specific line of business the worker actually touched, never to "any business in which the employer is engaged." Shafron makes ambiguity fatal, so the template forces you to name the activity precisely rather than reach for vague catch-all language that a court will void on sight.
• The geographic scope ties the restriction to the territory where the employer genuinely operates and the worker had influence. A national radius for a regional firm is the single most common reason covenants fail, so the field prompts you to match the area to your real proprietary interest rather than your ambitions.
• The duration of the restraint is set to the shortest period that protects the interest, typically six to twelve months for non-solicitation and rarely longer. Courts read excess duration as evidence the clause is punitive rather than protective, which undermines the whole covenant.
• The non-solicitation of clients and customers is separated from the non-compete so you can rely on it independently, and it is limited to clients the worker actually dealt with, not the entire customer base, which mirrors how courts narrow these clauses themselves.
• The non-solicitation of employees prevents the departing worker from recruiting your staff, drafted to active solicitation rather than a blanket ban on hiring, because an absolute no-hire term reaches too far.
• The consideration and acknowledgement provision records that the worker received something of value for the restraint and understood it, addressing the recurring argument that a covenant signed mid-employment lacks fresh consideration. This pairs naturally with the confidentiality protections in our confidentiality and non-disclosure templates.

Ontario is the strictest jurisdiction and the one most users need to get right. Section 67.2 of the Employment Standards Act, 2000 makes employee non-competes void, full stop, unless the worker is a true executive or the covenant flows from a sale of business. Drafting a non-compete for an ordinary Ontario employee is not merely risky, it is unenforceable by statute. The practical answer is to rely on non-solicitation and confidentiality covenants, which the ban leaves untouched, and to reserve any non-compete for genuine C-suite hires or commercial transactions.

British Columbia has no statutory ban, so the common-law Elsley and Shafron framework governs in full. BC courts are demanding on geographic precision, as Shafron itself, a BC case, demonstrates. A covenant that is vague about territory will not be rescued by the court, which refuses to apply notional severance to restrictive covenants.

Alberta likewise relies on common law and applies the reasonableness test strictly, with particular scrutiny of duration. Alberta courts have shown willingness to enforce narrow non-solicitation clauses while striking broad non-competes, reinforcing the template's split structure.

Quebec stands apart, governed by the Civil Code of Québec rather than common law. Article 2089 expressly allows non-competition stipulations but requires them to be limited as to time, place and type of employment to what is necessary to protect the employer's legitimate interests, and the employer bears the burden of proof. Quebec also has specific rules under article 2095 that bar enforcement where the employer terminated without a serious reason. If you operate in Quebec, the employment contract templates aligned to provincial law account for these distinct civil-law requirements.

You begin by selecting the province where the worker is based, because that single choice changes everything downstream. Choose Ontario and the form steers you away from an employee non-compete and toward the non-solicitation and confidentiality covenants that survive the section 67.2 ban, while flagging the executive and sale-of-business exceptions if they apply. From there you identify the parties and classify the relationship as employment or independent contractor, since that classification affects which restrictions are available to you. The template then asks you to describe the specific business activity to be restricted in plain, narrow language, and it prompts you against the catch-all phrasing that Shafron tells us will be read as ambiguous. You set the geographic area to match where you actually operate, and the duration to the shortest period that protects your interest. Finally you decide whether to include client non-solicitation, employee non-solicitation, or both, and the document assembles a clean, signature-ready agreement in Word and PDF. You can revisit any field and regenerate, which is useful when you are testing a tighter scope against a broader one before committing.

The first and most damaging mistake is reaching for a non-compete when a non-solicitation clause would have done the job. Employers assume a broader restriction gives more protection, but in Canada the opposite is true: the broader the restraint, the more likely a court voids it entirely and leaves you with nothing, whereas a tightly drawn non-solicitation clause is enforced routinely. The second mistake is ambiguity, the very flaw that sank the covenant in Shafron. Phrases like "the Greater Toronto Area" or "the businesses in which the company is involved" feel precise but are not, and judges will not rewrite them to make sense. A third recurring error is overreach on duration and territory, where a firm operating in one city imposes a two-year nationwide ban that reads as punishment rather than protection.

Then there is the Ontario blind spot. Plenty of employers still slip a non-compete into standard employment contracts without realising it has been void since October 2021 for anyone below executive rank. Including a void non-compete can also taint the surrounding clauses and invite an employee to argue the whole restrictive-covenant package is unenforceable. The final mistake is failing to provide fresh consideration when a covenant is introduced after employment has already begun. A signature alone is not enough; the worker must receive something of value, or the covenant can be challenged for want of consideration. Pair the agreement with proper offer and employment documentation so the consideration is recorded from the outset.