Restrictive Covenants in Employment: What Ontario Employers Need to Know in 2026

Published on
March 28, 2026

Restrictive covenants are contractual provisions that limit what employees can do after leaving your company. While they can protect legitimate business interests, Ontario’s 2021 ban on non-compete clauses has fundamentally changed what employers can enforce. Here’s what you need to know about restrictive covenants in 2026.

Restrictive covenants are contract terms limiting employees’ future conduct after employment ends. In employment agreements, these provisions protect businesses by restricting former employees from competing, soliciting clients, or disclosing confidential information.

The three main types are non-competition clauses, non-solicitation clauses, and confidentiality clauses. Each serves different purposes and faces different enforceability standards under Ontario law.

Ontario's Non-Compete Ban: What Changed in 2021

As of October 25, 2021, Ontario’s Employment Standards Act prohibits employers from entering into post-employment non-competition agreements with employees, except for executives and business sale situations.

What the Ban Covers

The legislation prohibits non-competition clauses that restrict employees from engaging in any activity competing with the employer’s business after employment ends. This applies to agreements entered into on or after October 25, 2021.

Exceptions to the Ban

Executives: The ban doesn’t apply to employees who are presidents or hold chief executive positions within the employer’s business.

Business sales: Non-competes remain enforceable when an employee sells or leases a business to the employer and then becomes an employee of that business.

Pre-2021 Non-Competes

The Ontario prohibition does not have retroactive effect. Non-competition agreements entered into before October 25, 2021, remain subject to existing common law enforceability principles. However, updating or amending these old agreements may trigger the ban.

Non-Solicitation Clauses: Still Enforceable

Non-solicitation clauses prevent former employees from soliciting the employer’s clients, customers, or employees. Unlike non-competes, these clauses are not prohibited by Ontario legislation and remain enforceable if properly drafted.

Types of Non-Solicitation

Client/Customer Non-Solicitation: Prevents former employees from directly contacting or soliciting clients or customers of the former employer for a specified period.

Employee Non-Solicitation: Prohibits recruiting or hiring away the employer’s current employees.

Enforceability Requirements

For non-solicitation clauses to be enforceable, they must be reasonable in scope, duration, and geography. Courts consider whether the restrictions are no broader than necessary to protect legitimate business interests.

Reasonable duration: Courts rarely enforce non-solicitation clauses exceeding 12-24 months.

Geographic scope: The territory must be reasonable based on where the employee actually worked and had client contact.

Scope of restriction: The clause should only apply to clients or employees with whom the departing employee had a direct relationship.

Confidentiality Clauses: Strongly Enforced

Confidentiality clauses (also called non-disclosure agreements) protect proprietary information, trade secrets, and intellectual property. Courts are generally willing to enforce properly drafted confidentiality provisions.

What Confidentiality Clauses Protect

Trade secrets and proprietary information
Client lists and pricing information
Business strategies and marketing plans
Technical data and processes
Financial information
Intellectual property

Implied Duty of Confidentiality

Even without a written confidentiality clause, all employees owe a common law duty of confidentiality to their employer. However, written clauses provide clarity about what information is confidential and the consequences of breaches.

Drafting Enforceable Restrictive Covenants

Since courts presume restrictive covenants are unenforceable as restraints of trade, drafting them properly is critical.

Clear and Specific Language

Restrictive covenants must use precise language defining the scope of restrictions, including specific geographic areas, duration, and activities covered. Vague or ambiguous clauses won’t be enforced.

Protect Legitimate Business Interests

Courts will only enforce restrictive covenants that protect genuine business interests such as confidential information, customer relationships, or employee goodwill. You cannot restrict employees simply to limit competition.

Reasonable Restrictions

The restrictions must be reasonable between the parties and in the public interest. This means the covenant must be no broader than necessary to protect the employer’s legitimate interests.

Geographic scope: Global or even continental restrictions are generally too broad. Limit geography to areas where you actually conduct business and the employee worked.

Duration: Rarely will courts enforce employment non-solicitation clauses exceeding 12-24 months. Six months is common for junior employees.

Scope of activities: Be specific about what’s restricted. Blanket prohibitions on working in the industry are unenforceable.

Reasonable Restrictions

Senior employees with access to confidential information and client relationships justify stronger restrictions than junior employees. Customize covenants based on the individual’s actual role, access to sensitive information, and level of client interaction.

Common Drafting Mistakes

Using template non-competes: Since October 2021, standard non-compete templates are illegal for most employees.

Overly broad restrictions: Clauses prohibiting employees from working anywhere in Ontario or globally are routinely struck down.

Excessive duration: Restrictions lasting years are generally unenforceable in employment contexts.

Failing to specify legitimate interests: Courts need to see what business interests you’re protecting and why restrictions are necessary.

Copying business sale language: Non-solicitation clauses enforceable in business sales aren’t automatically reasonable in employment agreements.

Blue-Penciling: Can Courts Modify Clauses?

In Ontario, if a restrictive covenant is found unreasonable, courts typically strike down the entire clause rather than “blue-penciling” (modifying) it to make it reasonable. This means you cannot rely on courts to fix overly broad restrictions—you need to draft them correctly from the start.

While Alberta courts have adopted blue-penciling in some cases, Ontario courts have not embraced this approach. Draft your covenants to be enforceable as written.

Enforcing Restrictive Covenants

If a former employee violates a restrictive covenant, you have legal options.

Injunctive Relief

Employers typically seek court injunctions to stop the prohibited conduct immediately. This requires showing the breach is ongoing and damages alone won’t adequately remedy the harm.

Damages

If you’ve suffered financial losses due to the breach, you can sue for damages. However, quantifying losses from client solicitation or confidentiality breaches is often difficult.

Considerations Before Enforcing

Before taking legal action, consider:

Is the clause actually enforceable under current law?
Can you prove a breach occurred?
Are damages significant enough to justify litigation costs?
Will enforcement damage your reputation with other employees or in the industry?

Garden Leave as an Alternative

Some employers use “garden leave” as an alternative to restrictive covenants. Garden leave means paying the employee their salary for a period after termination while prohibiting them from working elsewhere.

During garden leave, the employee remains employed but doesn’t perform work duties. This prevents them from joining competitors without relying on post-employment restrictive covenants.

Garden leave is fairly uncommon in Canada and requires careful contractual drafting to avoid constructive dismissal claims.

What Employees Should Know

If you’ve signed an employment contract with restrictive covenants, understand what they actually mean for your future employment options.

Non-competes signed after October 2021: Likely unenforceable unless you’re an executive or sold a business to your employer.

Non-solicitation clauses: May be enforceable if reasonable. Consider whether the geographic scope, duration, and restrictions match your actual job responsibilities.

Confidentiality clauses: Generally enforceable. You have obligations not to disclose proprietary information even without a written clause.

If your former employer threatens legal action over a restrictive covenant, consult an employment lawyer. Many restrictive covenants are unenforceable due to drafting errors or unreasonable scope.

Best Practices for Employers in 2026

Stop using non-competes for regular employees: The 2021 ban means non-competes are illegal except for executives and business sale scenarios.

Focus on enforceable alternatives: Use well-drafted non-solicitation and confidentiality clauses to protect legitimate business interests.

Tailor covenants to roles: Senior employees justify stronger restrictions than junior staff. Customize provisions based on actual job duties and client access.

Review existing contracts: If you’re using employment contract templates from before 2021, they likely contain illegal non-compete clauses. Update them.

Get legal advice: Properly drafted restrictive covenants require legal expertise. Template language often fails enforceability tests.

Consider compensation for restrictions: While not legally required, offering consideration (like signing bonuses) for restrictive covenants strengthens enforceability arguments.

The Future of Restrictive Covenants in Ontario

Ontario’s ban on employment non-competes reflects growing recognition that these restrictions unfairly limit workers’ mobility and earning potential. Other provinces may follow Ontario’s lead.

However, employers still have legitimate interests in protecting confidential information, client relationships, and business goodwill. Properly drafted non-solicitation and confidentiality clauses remain viable tools for protection.

As courts continue interpreting the 2021 changes and workplace practices evolve, employers must stay current on what restrictions are enforceable and how to draft them properly.