Non-Compete and Non-Solicitation Clauses in Ontario: What the Courts Are Actually Enforcing

Few areas of Ontario business law generate more client confusion — and more litigation — than restrictive covenants. Non-compete clauses and non-solicitation clauses are everywhere: in employment agreements, in business sale agreements, in partnership contracts, and in shareholder agreements. But not all of them are enforceable. In fact, many of the ones employers and buyers are counting on are not.

Understanding what Ontario courts will and will not enforce — and why the analysis is different depending on the context — is essential for anyone drafting, signing, or trying to rely on a restrictive covenant.

The Legal Backdrop: Why Courts Are Skeptical of Non-Competes

Restrictive covenants are restraints of trade. Canadian courts — following a long tradition of English common law — view them with suspicion. The foundational principle is that individuals and businesses should be free to work, trade, and compete. A clause that restricts that freedom is enforceable only if it goes no further than is reasonably necessary to protect a legitimate proprietary interest.

If a restrictive covenant is too broad — in geographic scope, in duration, or in the activities it restricts — courts will typically refuse to enforce it. And unlike some US jurisdictions, Ontario courts generally do not ‘blue pencil’ (narrow) an overly broad covenant to make it enforceable. If it is unreasonably broad, it is void.

Employment Context vs. Business Sale Context: A Critical Distinction

The most important distinction in restrictive covenant law is between covenants in employment agreements and covenants in business sale agreements.

Employment Agreements: Higher Scrutiny, Lower Enforceability

In employment agreements, Ontario courts apply strict scrutiny to non-compete clauses. Employees are presumed to have weaker bargaining positions than employers, and the public interest in employees being able to work in their chosen field is given significant weight.

The Ontario Employment Standards Act (ESA) amendments introduced in 2021 went further, prohibiting non-compete agreements entirely for most employees — subject to limited exceptions for executive employees. A non-compete clause in an employment agreement with a non-executive employee is void in Ontario, regardless of how carefully it is drafted.

Non-solicitation clauses in employment agreements — prohibiting former employees from soliciting their former employer’s clients or colleagues — face less scrutiny than non-competes but still must be reasonable in scope and duration to be enforceable.

Business Sale Agreements: Greater Enforceability

The analysis is very different when the restrictive covenant is part of a business sale. When a seller sells their business and agrees not to compete as part of the deal, courts recognize that both parties are sophisticated commercial actors who freely negotiated the covenant in exchange for meaningful consideration (the purchase price). The seller received full value for agreeing not to compete — and it would be unjust to allow them to pocket the money and immediately go back to doing exactly what they sold.

Ontario courts have consistently applied a more permissive approach to restrictive covenants in business sale contexts. Non-competes that would be void in an employment agreement — with geographic scope extending to a city or region, and durations of two to five years — are regularly enforced in business sale agreements, provided they are reasonably tailored to protect the buyer’s legitimate interest in the goodwill it purchased.

What Makes a Restrictive Covenant Enforceable?

Whether in an employment or business sale context, an enforceable restrictive covenant must meet a three-part test:

• Reasonable in scope of activities restricted: The restriction must cover only the activities that actually compete with or harm the legitimate interest being protected. A non-compete that restricts the seller from working in any field of business — not just the business sold — is too broad.
• Reasonable in geographic area: The restriction must be limited to the geographic area in which the business actually operates and in which the buyer could reasonably be harmed. A business that serves the GTA should not carry a national non-compete.
• Reasonable in duration: Courts have generally accepted durations of two to five years in business sale contexts. Longer periods face increasing scrutiny.

A covenant that fails any of these tests is typically void in its entirety — courts will not save a bad covenant by rewriting it.

Common Drafting Mistakes

Even in business sale contexts where courts are generally more favourable, restrictive covenants fail for predictable reasons:

• Over-breadth: Defining the restricted activities too broadly — covering industries or activities that have nothing to do with the business sold
• Vague definitions: Using terms like ‘similar business’ or ‘competitive enterprise’ that courts may find too uncertain to enforce
• Excessive duration: Five years is generally the outer limit for most Ontario courts — covenants of ten years or more are almost always unenforceable
• Inadequate consideration in employment context: A non-compete added to an existing employment relationship after employment has started, without meaningful new consideration, is particularly vulnerable

Non-Solicitation Clauses: A More Reliable Tool

Because non-solicitation clauses are narrower than non-competes — they prohibit soliciting specific clients or employees rather than prohibiting competition generally — they are more reliably enforceable in both employment and business sale contexts. A well-drafted non-solicitation clause that specifies the restricted clients, the restricted activities, and a reasonable time frame will typically survive court scrutiny.

For many business buyers, a well-drafted non-solicitation clause provides most of the practical protection they actually need. The seller cannot call the existing clients and try to win them back. That protection, combined with the goodwill purchase and ongoing relationships, is often what really matters.

Enforcement Remedies

When a restrictive covenant is breached, the typical remedies are:

• Injunction: A court order requiring the breaching party to stop the prohibited conduct. Injunctions are the most immediate and effective remedy — they stop the harm rather than simply compensating for it.
• Damages: Compensation for losses suffered as a result of the breach — quantified by the business revenue lost to the competition or solicitation.
• Accounting for profits: In some cases, the court may require the breaching party to disgorge the profits they made from the breach.

Final Thoughts

Restrictive covenants are legal tools with real power — but only when they are properly drafted, properly supported, and appropriately scoped. Whether you are a buyer relying on a seller’s non-compete, an employer trying to protect client relationships, or a party who has signed a restrictive covenant you believe is unreasonable, the analysis is fact-specific. Get legal advice before you sign — and before you decide whether or not to comply.

Ready to Get Legal Advice You Can Trust?

Goldstone Law Professional Corporation serves clients across Mississauga, Brampton, Oakville, and the greater GTA in real estate, corporate, estate, and mortgage law. Whether you are buying your first home, structuring a business deal, or planning your estate, our team provides the clear, practical legal guidance you need.

Visit goldstonelawpc.com or call us at 905-595-9917. We are located at 201-186 Robert Speck Parkway, Mississauga, ON L4Z 3G1.

Disclaimer: This article is intended for general informational purposes only and does not constitute legal advice. For advice specific to your situation, please consult a qualified Ontario lawyer.