A Closer Look at Ontario Law and a Key Court Decision
A common question in employment law is whether an employer can restrict a former employee from working for a competitor through a non-compete clause.
This issue has become particularly important in Ontario following recent legislative changes that significantly limit the use of such clauses.
Case Background
In this case, an employee left their position at a pharmacy in September 2020 and subsequently began working at another pharmacy.
The former employer brought a legal claim, arguing that this move violated the non-compete clause in the employment contract.
A key fact in this case was that the new workplace was located less than 3 kilometres from the previous employer.
What Did the Non-Compete Clause Say?
Under the employment contract, the employee agreed that they would not:
- during the term of employment, and
- for one year after termination,
engage directly or indirectly in any activity that was:
- similar,
- related, or
- competitive
With the employer’s business, within a 15-kilometre radius of the workplace.
The First Legal Question: Does the New Law Apply?
In 2021, Ontario introduced legislation that generally prohibits non-compete clauses in employment contracts, except in limited circumstances such as certain senior executive roles.
However, an important point is that this law is not retroactive.
It only applies to contracts entered into after its enactment.
Since the contract in this case was signed in 2020, the new legislation did not apply.
The Second Legal Question: Is the Clause Enforceable Under Common Law?
Because the new statute did not apply, the court assessed the clause under common law principles.
Under this framework, the enforceability of a non-compete clause depends on whether it is reasonable.
The Court’s Test for Reasonableness
The court generally evaluates three key factors:
- Scope of activity
What types of work or activities are restricted? - Geographic scope
How wide is the restricted geographic area? - Duration
How long does the restriction last?
The court also emphasized that any ambiguity in the wording of the clause can render it unenforceable.
Court’s Analysis
The court focused primarily on the scope of restricted activity.
The clause prohibited the employee from engaging in any activity that was “similar, related, or competitive” with the employer’s business, directly or indirectly.
The court found this wording to be overly broad and vague.
The issue was that the clause could potentially cover activities that:
- were not directly connected to the employee’s previous role, or
- were part of unrelated functions within a similar business.
In other words, the restriction was so broad that it went beyond what is considered reasonable in employment law.
Court’s Decision
The court ultimately held that:
The non-compete clause was unreasonable due to its breadth and ambiguity and therefore unenforceable.
As a result, the employee’s new employment did not constitute a breach of contract.
Key Legal Takeaways
- Ontario’s new law significantly restricts non-compete clauses, but only applies to contracts signed after 2021
- For older contracts, enforceability depends on common law reasonableness
- Courts closely examine the scope, geography, and duration of restrictions
- Overly broad or vague wording can render a clause invalid
- Ambiguity in drafting typically works against the employer
Final Insight
This case highlights a fundamental principle in Ontario employment law:
Even before legislative reform, non-compete clauses were only enforceable if they were carefully limited and clearly defined.
Today, the threshold is even stricter. Most new employment contracts cannot include enforceable non-compete clauses at all, and older agreements are scrutinized closely by the courts.
For both employers and employees, this means that the wording of restrictive covenants can have significant legal consequences at the end of an employment relationship.
No comment