- Since October 25, 2021, the Employment Standards Act (ESA) prohibits employers from entering non-compete agreements with employees, and agreements made before that date are not prohibited by the ESA.
- The sale-of-business exception covers a sole proprietorship or partnership, and the Ministry reads it as working only where the seller is an individual, so it does not cover the sale of a corporation.
- If you signed a prohibited non-compete, you can file an ESA claim with the Ministry of Labour, and disputes about enforceability can still go to court.
If you own shares in a business that is being bought out, whether by your co-owners or by an outside buyer, you may be asked to keep working there afterward. Buyers often want a promise that you will not walk out and set up a competing business.
Whether the buyer can require that promise depends on how the deal is built and on the role you will have afterward. This article explains the Ontario rules in plain terms so you know what questions to ask before you sign.
The general ESA ban on non-competes
Since October 25, 2021, the ESA prohibits employers from entering non-compete agreements with employees, whether before, during or after employment. Agreements made before that date are not prohibited by the ESA.
Non-solicit and non-disclosure agreements fall outside the ban. So a buyer who cannot get a non-compete may still ask you to promise not to solicit customers or to keep information confidential.
The sale-of-business exception and why shares matter
The 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, and the parties sign a non-compete as part of the sale.
The Ministry's manual reads this exception as working only where the seller is an individual or individuals, so it does not cover the sale of a corporation. If you are selling shares in a corporation, you should not assume this exception protects the buyer's request.
A corporate seller's non-compete with the buyer is treated as a commercial covenant, whereas non-competes with the seller's employees remain barred unless an exception applies. Which of those descriptions fits your situation can turn on who is actually giving the promise and in what capacity, so it is worth having a lawyer review the documents.
The executive exception
Non-competes with an executive are not prohibited. In this context, an executive means someone holding the office of one of the following:
- Chief executive officer
- President
- Chief administrative officer
- Chief operating officer
- Chief financial officer
- Chief information officer
- Chief legal officer
- Chief human resources officer
- Chief corporate development officer
- Any other chief executive position
If you will be staying on in one of these roles, a non-compete may be allowed. A job title alone may not settle the question, so check what office you will actually hold.
Quick comparison of common situations
| Situation | What the rules say |
|---|---|
| Individual selling a sole proprietorship or partnership business and becoming the buyer's employee right away | Sale exception may apply |
| Shareholder selling shares of a corporation | Exception not read to cover the sale of a corporation |
| Staying on in a C-suite role | Executive exception may apply |
| Non-solicit or non-disclosure promise | Outside the ban |
If you already signed, and what to do next
If you signed a prohibited non-compete, or faced reprisal for refusing one, you can file an ESA claim with the Ministry of Labour. Disputes about enforceability can still go to court.
Whether a non-compete tied to a sale is reasonable in its length and area is a separate court question that this article does not cover, so get advice on that point.
- Find out whether you are selling shares of a corporation or a business run as a sole proprietorship or partnership.
- Check the date you signed or will sign the agreement.
- Confirm whether your future role is an executive office.
- Read whether the clause is a non-compete, a non-solicit or a non-disclosure promise.
- Have a lawyer review the purchase and employment documents before you sign.
Frequently asked questions
Can a buyer make me sign a non-compete when I sell my shares?
The ESA bans employer non-competes with employees, and the sale exception is read as covering only individual sellers, not the sale of a corporation. A corporate seller's covenant with the buyer may be a commercial term, while non-competes with employees remain barred unless an exception applies. A lawyer can tell you which category your deal falls into.
Does the ban apply to agreements I signed years ago?
The ESA does not prohibit agreements made before October 25, 2021. That does not by itself settle whether such an agreement can be enforced, which is a question a court can decide.
Are non-solicit and confidentiality clauses also banned?
No, non-solicit and non-disclosure agreements fall outside the ban. They can still be negotiated, so read their wording carefully.
What can I do if I signed a prohibited non-compete?
You can file an ESA claim with the Ministry of Labour, including if you faced reprisal for refusing one. Disputes about enforceability 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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