TORONTO, ON –– When being hired into a new job, one of the most common conditions of employment is to sign a non-compete agreement. These are often wrapped in non-disclosure agreements and non-solicitation agreements. The goal of HR is to protect the company from an employee carrying their experience and knowledge to a competitor should they quit or get terminated from their job. Do non-competes unfairly restrict employee rights though? Ontario Canada thinks they do.
This week, Ontario followed California and Hawaii with legislation ending the practice of non-compete agreements. It passed with a unanimous and unopposed vote by all members.
Non-compete clauses can stifle career mobility
Non-competes have long been seen as a burden, stifling the acceleration of people’s careers in the industry within which they are competent. Employees who lose their job or wish to change companies for whatever personal reason are expected by the previous employer not to reenter the job market where they are skilled and trained. Conversely, many employers are handcuffed by these agreements, and have difficulty hiring the talent they need to grow.
The government of Ontario included the law with the “Working for workers” legislation. The new laws would give employees a slew of quality of life improvements: the right to disconnect from work, protect foreign nationals from predatory recruitment fees, license recruiters, enshrine truckers / delivery service workers’ right to use washrooms at businesses they serve, and lighten regulations for internationally trained individuals to practice their trade in Ontario.
A rare bipartisan success story
In a rare feat of unanimous consent, the legislation was introduced by the Ontario conservative labour minister Monte McNaughton and went unopposed by the NDP and Liberal members.
TechBomb spoke to Minister McNaughton, who introduced the bill, about why he thought the non-compete ban was good for the province.
“I was seeing what was happening in the U.S., where employers were using non competes as an intimidation factor… and when I heard of a fast food worker having to sign one, I felt it was an injustice to workers”, said McNaughton.
Minister McNaughton said Ontario was feeling the same kind of pressure from our own tech industry. “I’m proud that we are the first Canadian jurisdiction to act on this. Ontario needs this legislation to attract top talent, and it is was one of the biggest asks by tech employers in my area”, said McNaughton.
As is the case in California and Hawaii, who have both ended the ability to enforce non-compete agreements, McNaughton says “companies shouldn’t use non-competes to limit labor mobility or as an intimidation factor.” He pointed to a study in Hawaii that found the state’s 2015 ban on non-compete agreements for high-tech workers led to an 11% increase in job moves and a 4% increase in new-hire salaries.
The law is currently in effect only in Ontario
It’s important to note, however, that a non-compete signed outside of Ontario’s jurisdiction is still valid. This will require federal and other provinces initiating their own laws nationwide, and McNaughton called on other labour leaders to carry the torch further.
McNaughton said he has met with Federal Minister of Labour, Seamus O’Regan, and asked the Canadian government to make this a Canada-wide initiative. He also is calling on other provincial labour leaders to initiate their own legislation. “I thinks it’s something that I’d certainly be happy to work with the federal government and all provinces on to follow suit,” said McNaughton.
The United States has recently seen movement from their federal government to end non-compete agreements. In July, President Joe Biden introduced an executive order limiting the practice of food and beverage workers being forced to comply with non-compete agreements after a call from industry, including famed Chef Wolfgang Puck.
“If your employer wants to keep you, he or she should have to make it worth your while to stay. That’s the kind of competition that leads to better wages and greater dignity of work,” Biden said when addressing the nation.
Historically, Ontario has not enforced non-compete agreements and only a couple of cases in Canada have ever reached the supreme court, but McNaughton maintains the legislation will serve to take away any doubt.
Does it apply to absolutely everyone? Not exactly.
Not all individuals are covered under the new legislation though. If you are a C-level director or senior vice president, you can still be sued. While flipping burgers from one restaurant to another likely isn’t going to carry any proprietary trade secrets, the position of power in the executive suite means directors might need to review their own Non-Disclosure and Non-Compete clauses.
The legislation explicitly says that you cannot hide non-competes in another employment contract like a non-solicitation agreement, and will invalidate the agreement by default.
Lawyer Mario Torres of Brazeau Seller Law weighed in, saying: “This new legislation reinforces the position often taken by courts in respect of non-competition agreements. There are several open questions which will hopefully be addressed shortly in regulations.”
“Do their current and future agreements need to be updated? What will be the outcome when the employment relationship crosses jurisdictions? What other options are there to protect the interests of the parties?”
Torres encourages prospective employees and employers to closely follow the development of the regulations and, when in doubt, reach out to an employment lawyer.
Minister McNaughton acknowledged that, while this will be a very positive piece of legislation to spur tech innovation and labour movement, that it’s just a start. More measures are being tabled now to help Ontario workers.
The legislation takes effect immediately, but will not cover previous employee or employer contracts. It will only cover the jurisdiction of Ontario, but it is a step in the right direction for Ontario tech and other industries. Ontario seeks to be a welcoming place for people living here and abroad to make a living.
So Human Resources departments beware, if you are forcing a non-compete in Ontario, or hiding it under the guise of an NDA or non-solicitation, you likely won’t have a legal leg to stand on from here on out, based on royal assent this week.