Non-Compete Agreement No Longer Legal Under Bill 27: Working for Workers Act, 2021
Topics Will be Covered in This Post:
1. What is Working for Workers Act, 2021?
Bill 27: Working for Workers Act, 2021 was introduced in late October 2021, and received Royal Assent on December 2, 2021.
The key highlight of the Working for Workers Act, 2021 is 1) prohibitions on the use of non-compete obligations in employment agreements; 2) requiring employers with 25 or more employees in Ontario to develop a "disconnecting from work" policies; 3) prohibitions on temporary help agency or anyone acting as a recruiter to operate without a valid licence.
2. Prohibition On Non-Compete Agreements
Non-competition clauses have been discredited by the Court and have been regularly struck down by Judges recently. Working for Workers Act, 2021 seems to be codifying that legal trend.
Non-compete clauses or non-compete obligations in employment contracts are now prohibited, if such agreement was entered into after October 25, 2021.
A. Exceptions to the Prohibition Against Non-Compete Agreements:
An employer is allowed to prohibit an employee from competing with the employer's business during the employee's terms of employment.
The prohibition against non-competition is not applicable if such non-competition contractual obligations are tied to the sale of a business.
The prohibition against non-compete agreements DOES NOT apply to executive and high-ranking officers of a company.
- Under Working for Workers Act, 2021 (the Act), a "non-compete agreement" is defined in the Act to include "an agreement, or any part of an agreement, between an employer and an employee that prohibits the employee from engaging in any business, work, occupation, profession, project or other activity that competes with the employer's business after the employment relationship between the employee and the employer ends".
- Under the Act, the prohibition does not apply in the context of a sale of all or part of a business if i) the purchaser and seller enter into an agreement that prohibits the seller from engaging in any business, work, occupation, profession, project or other activity that competes with the purchaser's business after the sale, and ii) immediately following the sale, the seller becomes an employee of the purchaser.
- Under the Act, the prohibition does not apply to an "executive", which is defined as "any person who holds the office of chief executive officer, president, chief administrative officer, chief operating officer, chief financial officer, chief information officer, chief legal officer, chief human resources officer or chief corporate development officer, or holds any other chief executive position".
B. Caveats of the Working for Workers Act, 2021:
- The prohibition against non-compete provisions in employment agreements does not prevent employers from entering into non-solicitation or confidentiality agreements. Employers are well-advised to have employees sign non-solicitation and confidentiality agreements separate and distinct from any employment contract. Employers should carefully review their existing non-solicitation and confidentiality agreements to ensure that they are enforceable and are reasonably limited in scope and duration.
- Although the Act does not apply retroactively to employment contracts signed and came into force before October 21, 2021, there's already a pre-existing legal trend against non-competition restrictions. The Act will likely result in Courts taking an even stronger stand against existing employment non-compete agreements.
- As the Act is a codification of the legal jurisprudence against non-compete obligations in employment agreements, it's likely the Court will use a pragmatic approach in statutory interpretation and consider the actual job functions and the level of control exercised over other employees in determining who is an "executive". And as such creative naming conventions of job titles by adding the word "chief executive" or "executive" in the job title is probably not enough in safeguarding a non-compete clause in the employment agreement.
3. "Disconnecting From Work" Policies
Under Working for Workers Act, 2021, any employer with 25 or more employees (as of January 1 of any year) is required to have a written policy in place in respect of "disconnecting from work" by March of that year for all employees.
"Disconnecting from work" is defined as "engaging in work-related communications, including emails, telephone calls, video calls or the sending or reviewing of other messages, to be free from the performance of work".
The Act does not include any specific guidance for a disconnecting from work policy. For example, there is nothing in the legislation that prohibits employees from working (or being asked to work) outside of their "usual" business hours. Further, there are no exceptions made for executive or other higher-ranking employees (who are often expected to work, or at least answer important phone calls, check their e-mail during off-hours).
Without further guidance, it is unclear as to whether the employees will be allowed to refuse work outside of regular working hours.
4. Temporary Help Agency & Recruiter Licence
The Act prohibits persons from operating as a temporary help agency or acting as a recruiter without an Ontario license (to be issued by the Director of Employment Standards) and prohibits knowingly engaging or using the services of an unlicensed temporary help agency or recruiter. The Act sets out specific license application requirements for recruiters and record-keeping requirements for recruiters and clients of temporary help agencies.
The amendments also include a prohibition against any possible act of reprisal by a recruiter or temporary help agency against an employee due to an employee complying with the Employment Standards Act or asking that a recruiter do the same.
Licenses will have to be renewed yearly and will be non-transferable. A public database that lists all active, revoked, or suspended licenses will also be available.
Please note that the temporary help agency and recruiter licensing requirement mandated by the Act has not come into force yet, and thus will not yet be enforced. It has been suggested by government press releases that the licence requirements might not come into effect until 2024.
When you are drafting an employment contract and contemplating adding some protections against non-solicitation and safeguarding confidential information, you should consults with an employment lawyer or these agreements might not be enforceable and you be without any legal recourse or protection after an employee quit or be terminated. You might want to your employment terms and clauses drafted or at least have your agreement reviewed by an experienced employment lawyer to make sure you are in compliance to the ever changing employment law.
As an employee, you consult an employment lawyer to review your employment contract before signing to make sure you know what you are getting yourself into. When you have been terminated wrongfully or you have been constructively dismissed or that you are a victim of workplace harassment or workplace discrimination, you should consults with an employment lawyer or you risk waiving your legal rights under Common law, the Human Rights Code or your rights in suing for wrongful dismissal, constructive dismissal or workplace discrimination.
Don't Wait, Act Now before it's too late. Call us now at 647-849-6582 or Contact Us Now if you have any questions or concerns in related to employment contract, termination, discrimination or severance package or you want to book an appointment for a legal consultation.