- Ontario's Employment Standards Act prohibits non-competes between employers and employees made on or after October 25, 2021, and agreements made before that date are not prohibited by the Act.
- A sale-of-business exception can apply to a sole proprietorship or partnership if the seller becomes the buyer's employee immediately after and the non-compete is signed as part of the sale.
- The Ministry reads that exception as covering individual sellers only, so it does not cover the sale of a corporation.
You have built a business with a partner or on your own, and now someone wants to buy it. Part of the deal is that you stay on and work for the buyer, and the buyer wants you to sign a non-compete. You may have heard that Ontario banned non-competes, and you are wondering whether the one in front of you means anything.
The answer depends on how your business is set up, when the agreement was made, and what role you will hold afterwards. This article walks through the main rules in plain language so you know which questions to ask before you sign.
The general ban on employee non-competes
Since October 25, 2021, the Employment Standards Act (ESA) prohibits employers from entering non-compete agreements with employees, whether before, during or after the employment. Agreements made before that date are not prohibited by the ESA.
The ban is narrow in one respect. Non-solicit and non-disclosure agreements fall outside it. So a buyer may still ask you to promise not to approach its customers or staff, or to keep information confidential, without breaching the ESA ban.
The sale-of-business exception
The ESA ban does not apply where a business, or part of one, run as a sole proprietorship or partnership is sold or leased, the seller becomes the buyer's employee immediately after the sale, and the parties sign a non-compete as part of the sale.
In practice, all three pieces matter:
- The business was run as a sole proprietorship or a partnership.
- You become the buyer's employee immediately after the sale.
- The non-compete is signed as part of the sale, not added later as an unrelated term of your job.
If one of these is missing, the exception may not be available, and the general ban may then apply. A lawyer can look at your actual documents and timeline.
Why a corporation changes the answer
The Ministry's manual reads the sale exception as working only where the seller is an individual or individuals, so it does not cover the sale of a corporation. If your business sits inside a corporation, the exception as the Ministry reads it may not help the buyer.
There is a further distinction. A corporate seller's non-compete with the buyer is a commercial covenant, a business-to-business promise, rather than an employment one. But non-competes with the seller's employees remain barred unless an exception applies.
| Situation | How the ESA ban applies |
|---|---|
| Individual or partners sell a sole proprietorship or partnership and become the buyer's employees | Sale exception can apply |
| Corporation sells its business | Corporate seller's non-compete with the buyer is a commercial covenant |
| Seller's other employees asked to sign non-competes | Still barred unless an exception applies |
The executive exception
Non-competes with an executive are not prohibited. An executive means someone holding the office of CEO, president, chief administrative officer, COO, CFO, CIO, chief legal officer, chief human resources officer, chief corporate development officer, or any other chief executive position.
If you will be given one of those titles by the buyer, a non-compete may be allowed on that basis even if the sale exception does not fit. Whether a title is real or only a label is a question worth raising with a lawyer.
If you signed one, or were pressured to
Employees who signed a prohibited non-compete, or who faced reprisal for refusing to sign one, can file an ESA claim with the Ministry of Labour. Disputes about whether a non-compete can be enforced can still go to court.
Before signing anything, it helps to gather the following:
- The date each agreement was or will be signed.
- Whether your business is a sole proprietorship, partnership or corporation.
- The purchase agreement and your new employment agreement, side by side.
- Your proposed job title and duties after closing.
- Any separate non-solicit or confidentiality terms.
Then speak with an Ontario lawyer who can read the documents together. The ESA rules above are only one part of the picture, and the rest depends on the facts of your deal.
Frequently asked questions
Does the ban apply to a non-compete I signed before October 2021?
The ESA ban applies to agreements made on or after October 25, 2021, and agreements made before that date are not prohibited by the ESA. Whether an older agreement can be enforced is a separate question that a court may decide.
Can the buyer still ask me not to solicit customers?
Non-solicit and non-disclosure agreements fall outside the ESA non-compete ban. That does not mean every such term is acceptable, so have it reviewed.
My business is incorporated. Does the sale exception cover me?
The Ministry reads the exception as working only where the seller is an individual or individuals, so it does not cover the sale of a corporation. A corporate seller's non-compete with the buyer is treated as a commercial covenant.
Where do I complain about a prohibited non-compete?
You can file an ESA claim with the Ministry of Labour if you signed a prohibited non-compete or faced reprisal for refusing one. Enforceability disputes can still go to court.
Sources
- Your guide to the Employment Standards Act – Non-compete agreements — ontario.ca
- ESA Policy and Interpretation Manual – Part XV.1 Non-compete agreements — ontario.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
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