A Non-Compete Can Block a Job Without Ever Winning in Court

Bill C-31 would bar most non-compete clauses for roughly one million workers in federally regulated private-sector workplaces. The evidence behind the proposal shows why the clause can matter long before a judge sees it.

A contract clause does not have to survive a lawsuit to change a worker's decision. In Canadian survey evidence cited by the Competition Bureau, 44 per cent of workers whose non-compete was assessed as unlikely to be upheld said they would still turn down a competing job that violated it. Another 27 per cent said the clause had already prevented them from moving to, or starting, a competing business.

That is the practical case behind Division 9 of Bill C-31, which would amend the Canada Labour Code to prohibit most post-employment non-competes in federally regulated workplaces. The House Finance Committee reported the bill back to the House with amendments on October 30; the amendments were elsewhere in the bill, leaving the non-compete provisions in clauses 271 to 274 untouched. Bill C-31 is now at report stage. It is not yet law.

The clause can work before a court ever sees it

Non-competes are supposed to stop a former employee from competing with an employer for a period after leaving. In a narrow setting, that can protect a legitimate business interest: a buyer of a company, for example, may reasonably want to stop the seller from taking the sale proceeds and immediately rebuilding the same business next door.

The Canadian evidence suggests the clauses travel much farther than that. In 2025 surveys summarized by the Competition Bureau, employers estimated that 29 to 39 per cent of private-sector employees were covered by non-competes. Among workers surveyed, 20 per cent said they definitely had one and another 21 per cent thought they probably did. The Bureau also cites coverage among non-managerial workers, people on fixed-term contracts, low-paid employees and workers with no access to confidential information.

These are survey estimates, not a count of every Canadian employment contract. The OECD working paper behind the evidence describes the clauses as widespread and increasingly used, but it also treats worker behaviour as self-reported evidence rather than proof that every clause caused a missed job or lower wage.

The important mechanism is simpler. A worker facing a new job offer has to decide whether to test the clause at all. That can mean legal costs, uncertainty and a dispute with a former employer. A restriction that might eventually fail in court can therefore still narrow the choices made outside court. The Bureau calls this a chilling effect. Labour mobility can be reduced without an employer ever obtaining an injunction or damages award.

What Bill C-31 would actually change

The proposed federal rule is more direct than the current case-by-case approach. Bill C-31 would prohibit an employer from agreeing to or imposing a non-compete on an employee in a federal work, undertaking or business, and the prohibited clause would be void — or null in Quebec.

The bill includes defined exceptions. It would still allow a non-compete connected to the sale, lease or transfer of a federal business when the seller becomes an employee. It also exempts chief executive officers and a specified group of senior executives who report directly to the CEO, with room for regulations to add other positions or classes of positions.

The proposal also protects workers who refuse a prohibited restriction. An employer could not dismiss, suspend, lay off, demote or discipline an employee for refusing to agree to or comply with one. In a dispute over whether a restriction is covered or valid, the bill places the burden of proof on the employer.

There is an important open flank. Bill C-31 also creates a category called an "other employment-related restriction," but which additional restrictions fall into that category would be set by regulation. That matters because a non-compete is not the same thing as a confidentiality clause or a non-solicitation agreement. Those tools can protect trade secrets, customer relationships or staff from active poaching without barring a worker from taking a competing job altogether.

The legislation would not switch on automatically upon Royal Assent. Division 9 would come into force on a date set by the Governor in Council. Existing covered restrictions would not become void until the first anniversary of that commencement date.

Most Canadian workers would still be outside the federal rule

That federal scope is easy to miss. Bill C-31 would not create a national employment-law ban.

Federal labour standards cover a relatively small slice of Canada's workforce. Employment and Social Development Canada says the federally regulated private sector had about one million employees in 2024, or 5.8 per cent of the Canadian workforce. Those jobs are concentrated in transportation, banking, telecommunications and broadcasting, postal and courier services, grain handling, certain Crown corporations and other federally regulated activities.

For most workers, provincial or territorial law remains the governing lane.

Ontario has already made the clearest statutory move. Since October 25, 2021, its Employment Standards Act has prohibited employers from entering most new non-compete agreements, with exceptions for certain business-sale arrangements and executives. Ontario's guidance is also explicit that the prohibition does not itself ban non-solicitation or non-disclosure agreements.

Quebec follows a different model. Article 2089 of the Civil Code of Québec permits an express written non-compete, but requires limits on time, place and type of employment that are no broader than necessary to protect the employer's legitimate interests. The employer bears the burden of proving the clause is valid.

In common-law provinces without Ontario's statutory ban, court-developed reasonableness tests remain important. That does not mean every non-compete outside Ontario is enforceable. It means workers and employers can face a more fact-specific legal question about the wording, the job and the interest the employer says it needs to protect.

A worker reading an existing clause should therefore not assume that Bill C-31, Ontario's law or a general statement that non-competes are "hard to enforce" settles their situation. Jurisdiction, timing, role and wording matter. Specific disputes may require legal advice.

Employers still have interests worth protecting

Businesses have legitimate reasons to protect confidential information and customer relationships. The policy dispute is how much of a worker's future employment should be fenced off to do it.

That distinction showed up clearly in Senate committee evidence on Bill C-31. The Canadian Labour Congress supported the federal prohibition and argued for strong enforcement and an even shorter transition for existing clauses. Federally Regulated Employers — Transportation and Communications, representing employers in sectors covered by the Canada Labour Code, asked for a longer transition, broader senior-executive exemptions and explicit protection for legitimate non-solicitation and non-disclosure clauses.

Those are meaningful implementation questions. An employer that pays for confidential research, builds a customer book or buys a company does not lose every legitimate interest when an employee leaves. But a restriction aimed at protecting that interest should be tied to the interest itself. A confidentiality agreement protects confidential information. A non-solicitation clause can protect customer or staff relationships. A non-compete goes further: it restricts the work the former employee may do.

Bill C-31 draws that line more sharply in the federal labour sphere while leaving some details to regulation. Whether the balance is right will depend partly on those regulations and on how the rule is enforced after it takes effect.

Labour mobility is an economic issue

A clause buried near the end of an employment contract belongs in a competition story because workers carry skills, relationships and practical knowledge from one employer to another. New firms need experienced people. Growing firms need to hire from somewhere. Employees often improve their pay or working conditions by changing jobs rather than waiting for an internal promotion. Restricting movement can therefore affect more than one worker and one former employer; it can change how knowledge and opportunity circulate through an economy.

Bill C-31 would remove one barrier for workers in federal jurisdiction. It would not erase Canada's provincial differences, settle every dispute over restrictive covenants or prove that every worker covered by a non-compete has lost money. The OECD evidence is useful precisely because it shows a narrower and more immediate effect: people can change their behaviour because the clause is there.

A non-compete does not have to win in court to shrink a labour market. Sometimes it wins when the worker never sends the résumé.