What Bill C-31 means for federal employers
Canadian employers often use non-compete clauses in employment agreements to protect their business interests. But these clauses have long been closely scrutinized by Canadian courts, and a proposed amendment to the Canada Labour Code will ban them outright for federally regulated employers.
Canadian courts currently subject non-compete clauses in employment contracts to strict scrutiny. They are generally presumed to be unenforceable because of the inherent power imbalance between employer and employees during contract negotiations.
As a result, courts will only enforce such a clause in very narrow circumstances: when they go no further than what is required to protect the employer’s legitimate proprietary rights and do not unduly circumvent the employee from earning a livelihood or making use of their talents.
Ontario has taken a stronger stance than courts in this regard through legislation. Since 2021, its Employment Standards Act, 2000 has prohibited most non-compete clauses in employment contracts with limited exceptions for those tied to the sale or lease of a business, and for individuals holding certain executive positions.
On May 6, 2026, the federal government introduced Bill C-31, the Budget 2025 Implementation Act, No. 2, which includes proposed amendments to the Canada Labour Code that will prohibit employers from entering non-compete agreements with certain employees. Such...
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