Restrictions on Restrictive Covenants: Implications of a Potential Ban on Non-compete Clauses for Start-ups

Written by Justin Chia
JD Candidate 2025 | UCalgary Law

Non-compete provisions are key mechanisms that start-ups and companies use to safeguard trade secrets and other sensitive information that employees may obtain during employment.[1] The primary concern with non-compete clauses is their potential to unfairly restrict an individual’s ability to find employment in their preferred trade or occupation.[2] Clauses with narrow geographic and temporal terms are more likely to be upheld by the courts in Canada. Additionally, courts are more likely to uphold restrictions on activities in which the employee is prohibited from engaging are not overly broad.[3] Non-compete clauses and various other restrictive covenants, including non-solicit provisions and Non-disclosure agreements (NDAs), can protect a start-up’s trade secrets from its competitors.
 
The U.S. Federal Trade Commission recently proposed a nationwide ban on non-compete clauses.[4] The ban would prohibit employers from imposing non-competes on employees, regardless of how narrowly framed. The FTC’s main concern is that non-competes unfairly restrict an individual’s employment opportunities and undermine economic competition and innovation.[5] Any agreement that purports to limit an employee’s opportunities to seek future employment will fall under the ban, even if not explicitly labelled as a non-compete.
 
Ontario is currently the only province in Canada that has imposed a ban on non-compete clauses.[6] The prohibition on non-competes reflects the common law presumption that they are contrary to public policy. Whether the rest of the provinces or the federal government will follow suit regarding outlawing non-competes remains to be seen.
 
The implications of a ban on non-competes for start-ups are not precisely clear. Still, it would likely considerably impact how start-ups seek to protect trade secrets and intellectual property more broadly. Should a ban on non-competes be imposed, start-ups still have a variety of other restrictive covenants at their disposal to safeguard IP, including NDAs and non-solicits. Ontario, however, is discussing a potential ban on NDAs in the context of workplace misconduct, which, if implemented, could also be extended to IP.[7] Potential bans on non-competes and other restrictive covenants emphasize an increasingly clear reality. Corporate and employment legal regimes require start-ups to balance commercial interests with the rights of employees, which is by no means an easy task.


[1] Bryce C Tingle, Start-up and Growth Companies in Canada: A guide to Legal and Business Practice, 3rd ed (Toronto: LexisNexis, 2018) at 131.

[2] Shafron v KRG Insurance Brokers (Western) Inc, 2009 SCC 6 at para 16.

[3] Payette v Guay Inc, 2013 SCC 45 at para 61.

[4] “FTC. Proposes Rule to Ban Noncompete clauses, Which  Hurt Workers and Harm Competition (5 January 2023), online: Federal Trade Commission <https://www.ftc.gov/news-events/news/press-releases/2023/01/ftc-proposes-rule-ban-noncompete-clauses-which-hurt-workers-harm-competition.>

[5] Ibid.

[6] “Ontario Bans Employee Non-Competition Agreements: What Does This Mean for Trade Secret Protection?” (9 December 2021), online: Fasken <https://www.fasken.com/en/knowledge/2021/12/ontario-bans-employee-non-competition-agreements-what-does-this-mean-for-trade-secret-protection.>

[7] “Ontario to consult on banning NDAs in cases of workplace harassment, misconduct” (6 November 2023), online: CTV News <https://toronto.ctvnews.ca/ontario-to-consult-on-banning-ndas-in-cases-of-workplace-harassment-misconduct-1.6632398.>