The Employment Standards Act (“ESA”) was recently amended to include a prohibition on entering into non-competition agreements. This prohibition is deemed to have come into force on October 25, 2021. Regardless, it was already difficult to enforce non-competes and these ESA amendments will not make it any easier.
A “non-compete agreement” is now defined by the ESA to mean “an agreement, or any part of an agreement, between an employer and an employee that prohibits the employee from engaging in any business, work, occupation, profession, project or other activity that is in competition with the employer’s business after the employment relationship between the employee and the employer ends.”
The ESA carves out just two exceptions allowing employers to enter into non-compete agreements with:
- Executives defined as “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.”
- Sellers of part or all of their business who, as part of the sale, 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 purchasers’ business after the sale and immediately after the sale, the seller becomes an employee of the purchaser.
Non-compete agreements are not permitted in the employment setting under any other circumstance.
- Update job titles and job descriptions to ensure executive positions undoubtedly meet the definition of “executive”
- Enhance internal protection for proprietary and confidential information, such as client lists, know-how, etc.
- Adjust employment agreement templates accordingly to remove any language prohibiting competition and give special consideration for enhancing post-employment obligations such as proprietary ownership of information (intellectual property), non -solicitation, and confidentiality clauses. These types of agreements/clauses are still permissible and are important tools for employers to protect their business.