Why Non-Competes Survive in a Business Sale But Rarely in an Employment Contract in Ontario

If you've heard that non-competes are essentially dead in Ontario, you've heard something true — for employees. If you've also heard that a business sale can still lock in a departing owner with a solid non-compete, you've heard something equally true. Both statements are correct at the same time, because Ontario law treats these as two genuinely different situations, not two versions of the same rule.

Understanding why that distinction exists matters whether you're buying a business and want real protection, or selling one and wondering what you can actually be asked to sign.

Two Very Different Legal Starting Points

Ontario law approaches non-competes differently depending on the relationship between the parties:

• Employment non-competes are agreements between an employer and an employee restricting the employee's ability to work for a competitor after leaving the job.
• Sale-of-business non-competes are agreements where a seller — often the owner of the business being sold — agrees, as part of the transaction, not to compete with the buyer for a period.

These look similar on paper — both restrict someone's ability to compete — but the law treats them differently because the underlying relationship and bargain are fundamentally different.

Why Employment Non-Competes Are Now Effectively Banned

Since October 25, 2021, Ontario's Employment Standards Act, 2000 has generally prohibited employers from entering non-compete agreements with employees. The policy reason is straightforward: an employee negotiating the terms of a job offer typically has far less bargaining power than an employer, and a broad non-compete can trap someone in a job or effectively bar them from their own field after leaving one.

There are two recognized exceptions to that ban:

1. The business-sale exception — where a seller becomes an employee of the purchaser as part of selling the business, a non-compete tied to that sale can still be used.
2. The executive exception — for individuals in defined, senior C-suite-style roles.

Outside of those two narrow exceptions, a general employee non-compete is void under the ESA, regardless of how it's worded.

Why Sale-of-Business Non-Competes Are Treated Differently

A non-compete given by a seller as part of selling a business is a different kind of bargain entirely. The seller isn't a job applicant with limited leverage — they're a party negotiating, often with legal advice, over the terms of a commercial transaction, and the price paid for the business typically reflects, at least in part, the value of its goodwill: the ongoing customer relationships and reputation the seller built. A promise not to immediately compete for that goodwill is, in a real sense, part of what the buyer is paying for.

Courts have long applied more caution to employment non-competes than to non-competes tied to a genuine sale of a business, precisely because of this difference in bargaining position and purpose. That doesn't make a sale-related non-compete automatically enforceable — it still has to be reasonable in duration, geographic scope, and the activity it restricts — but it starts from a materially more favourable position than an employment non-compete would.

The ESA's Narrow Business-Sale Exception, in Practice

It's worth being precise about what the ESA's business-sale exception actually requires: the seller must become an employee of the purchaser as part of the transaction. If the seller has no ongoing employment relationship with the buyer at all — for example, a minority shareholder who is bought out and walks away entirely — the analysis becomes more nuanced, since the ESA's non-compete provisions are specifically about employer-employee relationships. That situation deserves its own careful legal review rather than an assumption that either the ESA ban or its exception clearly applies.

Common Misconception: "Any Departing Owner Can Sign a Standard Non-Compete"

Not quite. The business-sale exception is narrower than it sounds — it generally requires the seller to actually become the purchaser's employee. A departing owner who sells their shares and has no further employment relationship with the buyer sits in a different position, and applying a template non-compete to that situation without review can create real enforceability risk, even though the transaction is unmistakably a business sale.

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