As employers and workers adjust to Ontario’s new shutdown right and non-compete clause rule, many are wondering what these changes mean for them.

The right to separation has been incorporated into the Employment Standards Act, 2000, S0, c. 41 (“ESA”) on December 2, 2021 as part of the Working for Workers Act, 2021, SO 2021, c. 35 – Bill 27 (The “Act”).

Bill 27 made numerous changes to the ESA, including provisions on the right to separate Ontario and also changes to the enforceability of non-compete clauses in an employment contract.

It is important to understand these changes as the changes affect both employers and employees.

What is the right to separation?

The right to separate from Ontario is not a right in itself. It is a minimum standard that requires employers with 25 or more employees to have a written policy regarding an employee’s ability and right to take Ontario away from work. The guiding principle of the legislation is to set clear limits on when and how employees can switch off from their work duties. Employers operating in Ontario must have a written policy that must be distributed to their employees.

With the recent passage of the law, employers have great flexibility in drafting their policies. While stricter formalities and requirements are expected in the near future, employers currently have a free hand in what the guidelines can include. However, employers must ensure that written policies do not violate the ESA and provide less than the minimum benefits set out in the ESA.

What is a non-competition clause?

A non-compete clause is a clause in an employment contract designed to prevent employees from competing with their previous employer after the employment relationship has ended.

Before the start of an employment relationship, an employer can oblige its employees to agree on a non-competition clause as part of the employment contract. The employer’s goal with a non-competition clause is to be able to protect his company from his former employees working for their competitors.

Since the law was passed, non-competition clauses are prohibited unless the employee concerned is a manager.

What is the non-compete rule?

According to the ESA, non-competition clauses are no longer enforceable under labor law. This means that employers can no longer subject future employees to employment contracts that contain non-competition clauses. Even if an employee has agreed to a non-competition clause, such a contract is void under the ESA.

With the passage of the law, non-competition clauses became ineffective. However, since the law was passed on October 21, 2021, non-compete agreements entered into prior to that date may still be enforceable. If you are unsure whether a particular non-competition clause is enforceable, it is always advisable to seek legal advice.

The ban on non-competition clauses is not absolute. There are several exceptions where a non-compete agreement entered into after October 21, 2021 can still be enforced.

Are there exceptions to the rule against non-competition clauses?

There are two situations in which the prohibition on non-competition does not apply.

The first situation concerns the sale of a company. If all or part of a business is sold and the seller subsequently becomes a partner or employee of the buyer, the rule may not apply. In particular, if the seller agrees to a non-competition clause as part of the sale, the seller is prevented from engaging in certain business activities that may be in competition with the buyer.

The second situation concerns employees with managerial responsibilities. ESA defines an executive role with the following titles:

• President
• Managing Director
• Chief Financial Officer
• Operations manager
• Any other function of the Chief Executive

An employee who entered into a non-compete agreement prior to assuming any of the above roles or titles may be restricted from performing certain business activities after termination of employment. These business activities may include starting a business that competes with their previous employer, or then working for a competing company.