Non-Compete Agreement
An agreement restricting an employee or contractor from competing with a business for a defined period and geographic area.
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A non-compete agreement — sometimes called a restrictive covenant — is a clause or stand-alone contract in which an employee or contractor agrees not to compete with a business for a specified period of time and within a defined geographic area after their relationship with the business ends. In Canada, non-compete agreements are enforceable but subject to strict scrutiny by courts.
Canadian courts and non-competes
Canadian courts apply a reasonableness test to non-compete agreements. To be enforceable, the restriction must be reasonable in scope (what activities are restricted), duration (how long), and geography (where the restriction applies). Overly broad restrictions — particularly those that effectively prevent a person from earning a living in their field — are routinely struck down. Ontario has also legislated against non-competes for most employees since 2021.
Drafting considerations
Non-compete agreements are most defensible when they protect a legitimate business interest (such as trade secrets or client relationships), are tailored narrowly to that interest, and are supported by consideration (something of value given in exchange). Generic, broadly worded agreements offered without consideration are vulnerable to challenge.