In November 2021, the Ontario Government passed the Working for Workers Act, 2021. In addition to requiring recruiters and temporary help agencies to be registered, and mandatory policies permitting employees to “disconnect” from work, the Act prohibits the inclusion of non-compete clauses in employment agreements. Non-compete clauses are intended to bar an employee from engaging in activity that is in competition with the employer’s business after the employee leaves.
There are two exceptions.
This non-compete prohibition does not apply to employees who hold an executive position. The term “executive” is defined, and includes CEO, CAO, COO, CFO, CIO, president, and any other “chief executive position.” The definition includes the word it is defining, but it is hoped that the other examples in the definition will make what is and what is not a “chief executive position” clear. The employment agreement for executives will still be able to include a non-compete clause.
The other exception is in the sale of a business. When a business is sold, the agreement for the sale of the business can prohibit the seller from engaging in a business or activity that is in competition with the purchaser’s business.
The legislation acts prospectively by prohibiting employers from entering into new agreements that ban competition upon departure. The Working for Workers Act does not say that it renders existing agreements unenforceable; however, it will be interesting to see how a court may apply the policy behind the new legislation, if at all, to existing agreements.
While employees may be able to work for a competitor, they may be limited in what they can do for that new employer. Some employees will still be bound by a fiduciary duty to their former employer and, as such, would not be permitted to actively disclose or use confidential information or intellectual property.
This new legislation does not prohibit clauses that prevent employees from actively soliciting their former employer’s clients, commonly referred to as non-solicitation clauses. Some employees may be prohibited from actively pursuing clients of their former employer due to fiduciary duties they owe to that former employer, or based upon a non-solicit clause in their employment agreement.
While on its face, the legislation and its intent appears clear, there are some questions that will need to be answered:
- How broadly will the term “activity” be interpreted?
- Does the “prohibition” include clauses that in some limited way still “restrict” the ability of a former employee to compete?
- Will some employers still seek to include non-compete clauses in proposed employment agreements as a form of subtle intimidation, or rephrase some employment agreements to include some shares as a sale of a part of the business to fall within the exception for partial sale of businesses?
- Will non-solicitation clauses be expanded to try to limit or restrict the ability to compete in order to avoid or circumvent the new legislation?
- Will employees be asked to acknowledge and agree upon the extent of fiduciary duties owed by them to further protect the employer’s interests in the absence of non-compete clauses?
Upon entering into a written agreement for employment, especially while there remain uncertainties from this new law, both employers and employees are urged to speak with a lawyer to determine what is or what is not permitted.
