On October 25, 2021, the Ontario government announced that it would be introducing Bill 27 or the Working for Workers Act, 2021, (the “Bill 27”) which legislated a number of changes that impacted man provincially regulated employers. A summarized list of the proposed changes can be found on the government’s website. In this article, we have summarized two important changes brought about by Bill 27.
No More Non-Compete Agreements…sort of.
While non-compete agreements are notoriously difficult to enforce (i.e. they are presumptively unenforceable), the government has made the decision to implement an outright ban on the use of non-competes for all provincially regulated employers. To most employment lawyers, this does not represent a drastic change. Non-compete agreements were extremely difficult to enforce, even prior to this outright ban, and they attracted a very high degree of judicial scrutiny. In most situations where they were implemented, they were, in truth, probably utilized for their “chilling effect”; many employees would be unlikely to dispute the enforceability of a non-compete, as they were probably unaware that they are extremely difficult to enforce. Even still, the Ontario government decided to remove all doubt about the issue by implementing an outright ban (sort of, see below). Importantly, it should be noted that the reprisal provisions under the Employment Standards Act, 2000 (“ESA”) will apply, meaning that an employer cannot punish an employee in any way for refusing to sign a non-compete agreement.
The ban is explicitly subject to two very important exceptions. First, Bill 27 indicates that if there is a sale of a business or part of a business, and, as a 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 and, immediately following the sale, the seller becomes an employee of the purchaser, the ban will not apply. Obviously, this will be important for any person planning on selling or purchasing a business. Second, the ban will not apply to an “executive”. Under the new amendments to the ESA, an executive means “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”. As a result, principals of a business that you may be purchasing would be exempted from this ban, if they were an “executive” as defined above. Nonetheless, if you are planning on purchasing a business in the future, and would like to implement a non-compete, you should seek out legal advice to ensure that the principal of the business you are purchasing is caught under one or both of these exemptions.
Immediately after the implementation of Bill 27, there was a question of whether Bill 27 would render existing non-compete agreements unenforceable. Recently, in the court case Parekh et al v. Schecter et al, 2022 ONSC 302, the court held that the prohibition on non-competition agreements does not apply to agreements entered into prior to October 25, 2021. As a result, if you have employment agreements that were executed prior to October 25, 2021, that contain non-competition provisions, then they will not be rendered unenforceable by virtue of Bill 27. Of course, those provisions must still meet the common law test if they are going to be enforceable. That said, moving forward, all employment agreements should remove any reference to non-competition agreements, except for executive level employees.
Finally, it would appear as though other types of restrictive covenants (like non-solicitation and non-disclosure agreements) would remain legal; however, the language of the statutory provision may be overly broad such that other types of restrictive covenants like non-solicitation agreements may be impacted. If you are planning on relying on these types of provisions, you should seek out independent legal advice.
Working from home has become far more prevalent due to COVID-19; no doubt, for some, it has also led to burn out. In response, the Ontario government has decided to mandate that certain businesses must implement a “disconnecting from work” policy. The requirement would apply to employers that, on January 1 of any year, employed 25 or more employees. Importantly, employers who were captured by this change had until June 2, 2022 to implement a policy. If your company had 25 or more employees as of January 1, 2022, and you have not implemented a disconnecting from work policy, you should do so as soon as possible. As it stands, the ESA does not specify that the policy provide a right for the employee to disconnect from work. Therefore, while many in the media have indicated that employees now have a “right to disconnect” that is not accurate, strictly speaking. Because the legislation does not dictate what should be included in such a workplace policy, for the time being, it remains up to the employer to decide what rights its employees ought to enjoy vis-à-vis disconnecting from work.
It should not be overlooked that some employees have welcomed the change to the traditional 9 to 5 work day initiated by the pandemic, as it has granted them more freedom to complete their work at different times during the day. Some employees have welcomed the ability to, for example, take their kids to school or pick them up, and complete their work in the evenings. How Bill 27 will impact those workers is not yet known.
Our team at Lerners LLP will be keeping a close eye on these legislative changes. If you have any questions about these changes, or about any aspect of Bill 27, please do not hesitate to reach out to us.