Ontario's Working for Workers Act, 2021 ("WWA") received Royal Assent on December 2, 2021. Among other things, the WWA amended the Employment Standards Act, 2000 ("ESA") to prohibit employers from entering into non-compete agreements with employees, subject to exceptions for executive employees or where there is a sale of a business.1

The prohibition from entering into non-compete agreements with employees is deemed to have come into force on October 25, 2021. One question that many employers have been asking is how courts will interpret non-competition provisions that were entered into prior to October 25, 2021. In the recent decision of Parekh et al v. Schecter et al, 2022 ONSC 302 (CanLII) ("Parekh"), Justice Sharma offered some helpful commentary on this point.

In this case, the plaintiffs purchased a dentistry practice for $5.6 million in 2020. As part of the sale, one dentist, Dr. Ira Schecter continued working at the practice for a period of time. The plaintiffs also sought restrictive covenants from Dr. Schecter, including a non-compete covenant restricting him from practicing dentistry within a 5 km radius of the plaintiffs' business. Following the purchase, Dr. Schecter resigned and began to practice at another dentistry within that radius. The plaintiffs brought an interlocutory injunction motion seeking orders to enforce the restrictive covenants, including the non-compete clause.

Dr. Schecter argued that the WWA applied to void the non-compete clause. Justice Sharma considered the statutory provisions enacted by the WWA and observed that typically, legislation comes into effect when a Bill receives Royal Assent or on a date to be named by proclamation. Here, the legislature selected a specific date for the amendments to take effect (October 25, 2021). As such, the WWA amendments did not apply to void the non-compete clause which was entered into on January 20, 2020.

Specifically, Justice Sharma stated the following:

[47] Faced with this express legislative intent to make the ESA amendments applicable as of October 25, 2021, and not earlier, it cannot be said the provisions with respect to the non-compete clause applies to contracts of employment with non-compete clauses entered into before October 25, 2021.

[48] At most, and in respect of this case, the new ESA provisions confirms the public policy against restraint of trade, which has already been accepted in the common law.

After determining that the WWA did not apply to the non-compete covenant in this case, Justice Sharma applied the common law. In so doing, Justice Sharma made an order whereby Dr. Ira Schecter is prohibited from carrying on or engaging in the practice of dentistry within a 5 km radius of the plaintiffs' business until October 27, 2023.

Parekh is a welcome decision for employers, as it provides additional clarity on the effects of the WWA and confirms that non-competition agreements entered into with employees prior to October 25, 2021 may be enforced in accordance with the common law.

Where permitted, restrictive covenants still must be carefully drafted to meet the legal requirements for enforceability under the common law test. If you have any questions regarding the common law enforceability of existing restrictive covenants or about where non-competition clauses will be permitted going forward (and how to best draft them), please do not hesitate to contact any member of our Labour & Employment Law team.

Footnote

1. More information on the WWA's key legislative changes can be found here.

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