- A few practical reasons come up repeatedly: - The old contract may not name the new employer.
- Ontario's general ban on employee non-competes has exactly two recognized carve-outs: 1.
When a buyer closes on an Ontario business, it's common for key employees — a general manager, a lead salesperson, a senior technician — to be asked to sign fresh restrictive covenants as part of the transition: new confidentiality terms, non-solicitation agreements, and sometimes a non-compete. For an employee who has worked there for years, being handed new paperwork at closing can feel unnecessary. For the buyer, it's often one of the most important protections in the whole deal.
Understanding why buyers ask for this — and what Ontario law actually allows them to ask for — helps both sides get through the request without friction, or without accidentally signing something that turns out not to be enforceable anyway.
Why Buyers Want Fresh Agreements, Not the Old Ones
A few practical reasons come up repeatedly:
- The old contract may not name the new employer. In an asset purchase, the buyer is a different legal entity than the employee's original employer — a covenant written to protect the seller's business doesn't automatically protect the buyer's.
- The old contract may not have strong covenants at all. Many small businesses never had their employment agreements reviewed with restrictive covenants in mind; the buyer may be filling a gap that always existed.
- The buyer wants covenants tailored to the deal. Confidentiality obligations that specifically reference the business's trade secrets, customer relationships, and pricing information are more useful going forward than generic boilerplate.
The Three Types of Covenant, and How Ontario Treats Each
| Covenant type | What it restricts | Current ESA treatment |
|---|---|---|
| Non-compete | Working for a competitor or starting a competing business | Generally prohibited for employees since October 25, 2021, subject to two narrow exceptions |
| Non-solicitation | Soliciting the employer's clients or employees | Not a "non-compete" under the ESA — generally enforceable, subject to ordinary reasonableness limits |
| Confidentiality / NDA | Disclosing trade secrets, client lists, pricing, and other proprietary information | Not a "non-compete" under the ESA — generally enforceable, subject to ordinary reasonableness limits |
This distinction is the single most important thing to understand in this area: a broad "you can't work for a competitor" clause is treated very differently from a narrower "you can't poach our clients" or "you can't disclose our trade secrets" clause.
The Two Non-Compete Exceptions — And Why They're Narrower Than Sellers Expect
Ontario's general ban on employee non-competes has exactly two recognized carve-outs:
- The business-sale exception — where the individual, as part of selling a business, becomes an employee of the purchaser.
- The executive exception — for defined C-suite-style roles.
A common misconception is that any key employee retained through a business sale can be locked into a non-compete. That's not automatically true. A retained manager who isn't in a defined executive role, or a minority shareholder who is leaving rather than becoming an employee of the purchaser, may not fall within either exception — meaning a non-compete offered to them could be unenforceable regardless of how it's worded. This is exactly the kind of situation where the specific facts of the role and the deal need to be reviewed, not assumed.
What a Well-Drafted Retention Agreement Typically Covers
- [ ] Confidentiality obligations specific to the business's actual trade secrets and client information.
- [ ] A non-solicitation clause covering clients, and separately, other employees.
- [ ] A non-compete only where the individual clearly fits one of the two ESA exceptions — otherwise, the agreement should rely on the other covenants instead.
- [ ] A defined geographic and time scope for any enforceable covenant, matched to what the business can actually justify.
- [ ] Clear integration with the employee's new employment agreement, so there's no ambiguity about what document governs.
Frequently asked questions
Do I have to sign a new agreement if I already had a contract with the old owner?
Not automatically — it depends on the deal structure. In an asset purchase, you're being offered new employment by a new legal entity, and a new agreement is standard. In a share purchase, your existing employer hasn't changed, so your original contract generally continues unless both sides agree to something new.
Can a buyer make a non-compete a condition of my continued employment?
A buyer can ask, but whether that non-compete is actually enforceable depends on whether you fall within one of the two ESA exceptions. If you don't, the clause may not hold up even if you sign it — though non-solicitation and confidentiality terms in the same agreement generally remain enforceable regardless.
What happens if a retained employee later breaches a non-solicitation clause?
This can lead to a legal dispute over remedies such as an injunction or damages, and the outcome depends heavily on how the clause was drafted and whether it was reasonable in scope. If a dispute like this arises, our Litigation team can advise on the available options.
Is a confidentiality agreement enough on its own, without a non-compete?
For many roles, yes — confidentiality and non-solicitation terms address most of what a buyer is actually worried about (leaked trade secrets, poached clients) without relying on a non-compete that may not be enforceable anyway.
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