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Legislative Update – The ESA Prohibition on Non-Competition Clauses does not Apply to Contracts Signed Prior to October 25, 2021 – February 7, 2022

February 7, 2022
by Israel Foulon Wong LLP

On December 2, 2021, the Working for Workers Act (“the Act”) received Royal Assent and became law. We previously wrote a detailed e-bulletin on the Act on December 6, 2021. You can review the article HERE. The Act prohibits (with certain exceptions) the use of non-competition clauses within employment agreements, which typically restrict employees from working for a direct competitor or within a particular industry for a specified period of time after the cessation of the employment relationship.

Since the Act was entered into law, our employer clients have wondered how this change might affect their pre-existing employment agreements. Both the Ministry of Labour and the Ontario Superior Court have recently confirmed that the Act’s prohibition on non-competition clauses is retroactive to October 25, 2021. As a result, the Act does not appear to impact agreements that were entered into prior to this date.

Employment Standards Act Guide

The guide to the Employment Standards Act was recently updated to include the following language:

Employers are prohibited with some exceptions [C-Suite, Executive Employees], from entering into a non-compete agreement with an employee… . This Prohibition does not apply to non-compete agreements entered into before October 25, 2021 [emphasis added].

Parekh et al v. Schecter et al, 2022 ONSC 302 (“Parekh”)

In Parekh, Justice Sharma of the Ontario Superior Court was tasked with identifying whether the express purpose and intention of the Act was to modify employment relationships by attaching new consequences to the express terms of pre-existing agreements. The court ultimately concluded that,

[46]         Section 34(3) of [the Act] states that…provisions prohibiting non-compete clauses “is deemed to have come into force on October 25, 2021.”   Typically, legislation comes into effect when a Bill receives Royal Assent, or on a date to be named by proclamation by the Lieutenant Governor.  But here, the legislature selected a specific date before Royal Assent happened on December 2, 2021. 

[47]             Faced with this express legislative intent to make the ESA amendments applicable as of October 25, 2021, and not earlier, it cannot be said the provisions with respect to the non-compete clause applies to contracts of employment with non-compete clauses entered into before October 25, 2021 [emphasis added].

Take Away for Employers

As a result of the Act’s new prohibition on non-competition clauses, we recommend you contact us to have your existing employment agreement templates reviewed and revised in order to best protect your business interests through the use of non-solicitation clauses and confidential and proprietary information agreements.

Moving forward, we expect to see future court decisions debate which employees meet the new definition of “Executive,” and therefore can be validly subject to a non-competition clause. These decisions will likely analyse the substance of the position and the employee’s duties, as opposed to merely relying on the title to determine if the employee is exempt or not.

Importantly, even if the Act allows non-competition clauses for select executive employees, courts will continue to scrutinize these provisions under common law to ensure they are reasonable in terms of scope, geographic area, and temporally. As such, each non-competition clause must be carefully tailored based on the specific circumstances at hand.

Israel Foulon Wong’s Response to COVID-19 Israel Foulon Wong LLP is assessing the situation as it evolves, and is taking all necessary precautions within its workplace. To slow the spread of COVID-19 and for the health of our team and clients we are working remotely when possible. However, please be aware that our offices remain open and are fully functioning and we are holding in person meetings as required.  In the circumstances, we encourage our clients to contact us by phone and email to the extent possible. Voicemail messages left at our office phone numbers are immediately forwarded via email. All messages will be promptly responded to. We remain steadfast in our commitment to our clients and would be more than happy to assist you with concerns regarding COVID-19 or any other employment or labour matters.

Legal Disclaimer

This article is for informational purposes only and is not intended to provide legal advice, which in all circumstances must be tailored to the specific facts of any problem. You should obtain a proper legal consultation in order to determine how this article applies to your specific situation. Please feel free to contact Israel Foulon LLP to learn more at 416-640-1550.