Are Non-Competition Clauses Enforceable in Canada?

The verdict

It depends on when and where the clause was signed, and whether it was between an employer and employee or part of a business sale. In Ontario, most employee non-competition clauses (agreements that stop a former employee from working for a competitor) signed on or after October 25, 2021 are void because the Employment Standards Act, 2000 now prohibits them outright. Outside that ban, and everywhere in Alberta, non-competes are governed by the common-law test from Elsley v. J.G. Collins Insurance Agencies Ltd. (1978 CanLII 7, SCC): a restrictive covenant (a contract clause limiting what someone can do after the relationship ends) is presumed unenforceable, and the party trying to enforce it must first prove the restriction is reasonable between the parties before the burden shifts to the other side to show it harms the public interest.

Why Ontario’s rule is different now

Since October 25, 2021, Ontario employers are prohibited from entering into employment contracts or other agreements with an employee that include a non-compete agreement, regardless of whether it is limited by time or geography. A non-compete entered into on or after that date is void, full stop, subject to two exceptions written into the Employment Standards Act, 2000, Part XV.1. The first exception applies where the non-compete arises in connection with the sale or lease of a business, or part of a business. Ontario’s own guidance describes a second exception as well, but this article’s sources only detail the business-sale scenario, so anyone relying on the second exception should check the exact wording directly.

For Ontario clauses that predate the ban, or that fall inside an exception, the older common-law rule in Lyons v. Multari (2000 CanLII 16851, ON CA) still applies: courts generally will not enforce a non-competition clause if a narrower non-solicitation clause (one that only stops the employee from poaching clients or staff, not from working for a competitor at all) would adequately protect the employer’s interests. Broader non-competes are upheld only in exceptional cases.

How Alberta’s reasonableness test works

Alberta has no legislation banning employee non-competes. Instead, Alberta courts apply the common-law rule that restrictive covenants which are unreasonably broad, having regard to the public interest, will not be enforced (Intellimedia Limited Partnership v Jawad, 2026 ABKB 247, citing Elsley). That reasonableness inquiry looks at the scope, duration, and geographic reach of the restriction against the employer’s legitimate interest in protecting its business.

Two conditions specific to Alberta case law can flip the answer even where a clause looks reasonable on its face:

1. No new consideration. If a non-compete is added after the employment relationship has already started, and the employee receives no new benefit in exchange for accepting it, the Alberta Court of Appeal has held the clause is unenforceable (Globex Foreign Exchange Corporation v Kelcher, 2011 ABCA 240).
2. Wrongful dismissal. The same case confirms that a wrongful dismissal can relieve the employee of the obligation to comply with the restrictive covenant at all.

Sale-of-business clauses are judged differently

A non-compete signed as part of selling a business is not held to the same starting presumption as an employment non-compete. In Payette v. Guay inc. (2013 SCC 45), the Supreme Court of Canada put the burden on the party challenging the clause (the seller) to prove it was unreasonable, rather than requiring the buyer enforcing it to prove reasonableness first. This matters because a business sale often involves goodwill the buyer has paid for, which the courts treat as a different kind of interest than an employer’s interest in an employee’s ordinary labour.

What a vague or overly broad clause means for enforceability

Regardless of jurisdiction, if a non-compete’s wording is ambiguous or its scope is broader than needed, courts will not narrow it down to something reasonable. The Supreme Court of Canada confirmed in Shafron v. KRG Insurance Brokers (Western) Inc. (2009 SCC 6) that “notional severance cannot be applied to a restrictive covenant.” An unreasonable or ambiguous clause fails entirely; it is not rewritten or trimmed by a judge into an enforceable version.

What you can do next

Because enforceability turns on facts specific to the contract (when it was signed, whether it was employment or a business sale, and how narrowly it is worded), the practical options are:

• Compare the clause’s date and context against Ontario’s October 25, 2021 cutoff and the sale-of-business exception, if the clause is Ontario-based.
• Ask whether a non-solicitation clause would do the same job. Both Ontario and Alberta courts favour narrower non-solicitation clauses over outright non-competes, so this is often the first argument raised on either side.
• Check for consideration, in Alberta particularly, if the non-compete was added after the employment relationship began rather than at hiring.
• Get the clause reviewed against the Elsley reasonableness test (scope, duration, geography, and the employer’s actual interest) before assuming either that it is binding or that it is worthless.