[Canada] Legislation to ban non-compete clauses for employees introduced

On October 25, the Ontario government introduced legislation that would ban the growing trend of imposing non-compete clauses on employees, a practice that the Labour Minister said is often used to intimidate workers, The Globe and Mail reports.

This would be the first such ban in Canada, the move is primarily intended to make Ontario more appealing to talented tech workers who often face these clauses in employment contracts, Labour Minister Monte McNaughton told The Globe and Mail prior to the tabling of the bill.

But, he said, the ban is also necessary to block the increasing imposition of non-compete clauses even on low-wage workers; a common practice in the United States and one that critics say depresses wages and reduces labour mobility.

“I see that as an injustice,” Mr McNaughton said in an interview. “I don’t want that coming to Ontario.”

A non-compete clause typically aims to stop an employee taking their talents to a competitor after leaving their job and the ban can last for years. The growing use of these clauses has been flagged as a problem across North America.

Several US states have brought in rules restricting their use, especially for lower-wage workers, who in some cases have experienced bans keeping them from even seeking better-paid work. In July, President Biden issued an executive order asking the Federal Trade Commission to curtail the “unfair use of non-compete clauses ... that may unfairly limit worker mobility.”

California’s restrictions on such agreements have reportedly been credited by some as playing a part in Silicon Valley’s success in attracting tech talent and allowing workers to move between different companies and startups more freely. 

Mr McNaughton said he hopes Ontario’s ban on non-competes will help attract top tech talent from the US and elsewhere.

Stuart Rudner - a veteran Toronto labour lawyer who acts for both employers and employees - said that despite being common in employment contracts in Ontario, non-compete clauses are already rarely upheld when challenged in Ontario courts. But most employees are unaware of this, which leaves them vulnerable.

“They’ll put a non-compete in there just because it scares people,” Mr Rudner said. “So this legislation may go a long way toward alleviating that.”

Mr McNaughton said the proposed changes, amending the Employment Standards Act, would still allow companies to forbid departing employees from using intellectual property or confidential information and non-compete clauses would continue to be allowed in some cases where a business is sold. The changes would also still allow for agreements to block ex-employees from soliciting their former employer’s clients, which are also common and more often upheld in court.

Source: The Globe and Mail

(Quotes via original reporting)

On October 25, the Ontario government introduced legislation that would ban the growing trend of imposing non-compete clauses on employees, a practice that the Labour Minister said is often used to intimidate workers, The Globe and Mail reports.

This would be the first such ban in Canada, the move is primarily intended to make Ontario more appealing to talented tech workers who often face these clauses in employment contracts, Labour Minister Monte McNaughton told The Globe and Mail prior to the tabling of the bill.

But, he said, the ban is also necessary to block the increasing imposition of non-compete clauses even on low-wage workers; a common practice in the United States and one that critics say depresses wages and reduces labour mobility.

“I see that as an injustice,” Mr McNaughton said in an interview. “I don’t want that coming to Ontario.”

A non-compete clause typically aims to stop an employee taking their talents to a competitor after leaving their job and the ban can last for years. The growing use of these clauses has been flagged as a problem across North America.

Several US states have brought in rules restricting their use, especially for lower-wage workers, who in some cases have experienced bans keeping them from even seeking better-paid work. In July, President Biden issued an executive order asking the Federal Trade Commission to curtail the “unfair use of non-compete clauses ... that may unfairly limit worker mobility.”

California’s restrictions on such agreements have reportedly been credited by some as playing a part in Silicon Valley’s success in attracting tech talent and allowing workers to move between different companies and startups more freely. 

Mr McNaughton said he hopes Ontario’s ban on non-competes will help attract top tech talent from the US and elsewhere.

Stuart Rudner - a veteran Toronto labour lawyer who acts for both employers and employees - said that despite being common in employment contracts in Ontario, non-compete clauses are already rarely upheld when challenged in Ontario courts. But most employees are unaware of this, which leaves them vulnerable.

“They’ll put a non-compete in there just because it scares people,” Mr Rudner said. “So this legislation may go a long way toward alleviating that.”

Mr McNaughton said the proposed changes, amending the Employment Standards Act, would still allow companies to forbid departing employees from using intellectual property or confidential information and non-compete clauses would continue to be allowed in some cases where a business is sold. The changes would also still allow for agreements to block ex-employees from soliciting their former employer’s clients, which are also common and more often upheld in court.

Source: The Globe and Mail

(Quotes via original reporting)