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Following the 2025 Budget tabled in Parliament on November 4, 2025, which proposed amendments to the Canada Labour Code to restrict the use of non-compete agreements,1 draft legislation published by the Department of Finance on May 4, 2026 provides further insight into the form those amendments may take – if passed – in Division 9 of the Notice of Ways and Means Motion to introduce a bill entitled A second Act to implement certain provisions of the budget tabled in Parliament on November 4, 2025 (the “Notice”).2
Restrictions & Key Definitions
The Notice prohibits employers from agreeing to, or imposing a (i) non-compete clause and (ii) “other employment-related restriction” with an employee or trade union, and deems such clauses or restrictions as void (or in Quebec, null). The terms non-compete clause and other employment-related restriction are both defined in the Notice as follows:
non-compete clause means a term or condition of employment, or a clause in an agreement, that prohibits an employee from engaging in any business, work, occupation or trade, profession, project or other activity that is in competition with the employer’s federal work, undertaking or business after the employee ceases to be employed.
other employment-related restriction means a term or condition of employment, or a clause in an agreement, that is not a non-compete clause and is part of a class specified in the regulations.
For the purpose of the definition of other employment-related restriction, the Notice proposes that the Governor in Council may make regulations specifying classes of: terms, conditions of employment, or clauses of agreements, that in it’s view, “unreasonably restrict the ability of employees to engage in any business, work, occupation or trade, profession, project or other activity.”
Therefore, the proposed legislation extends beyond restricting non-compete clauses and broadly includes other employment-related restrictions. While non-compete clauses are defined in a fairly standard meaning, what constitutes a other employment-related restriction is currently unclear – and ultimately left to the discretion of the Governor in Council, per this proposal.
Exemptions
Exemptions are listed in the Notice which permit non-compete clauses and other employment-related restrictions in specified situations, subject to regulations made by the Governor in Council. These exemptions include and are in respect of:
- a person who leases or transfers their work, business, or undertaking to an employer and immediately becomes an employee of that employer – if they agreed to a non-compete clause or other employment-related restriction as part of the lease or transfer and if the work, undertaking, or business is a federal work, undertaking, or business, (or becomes) one because of the transfer;
- a person who holds the position or performs the functions of CEO;
- C-suite level employees who report directly to the CEO and are managers within s 167(3). In particular, an employee who reports directly to the CEO (or the person preforming the functions of CEO) and: (a) has functions that is part of a class of positions specified in the regulations, as mentioned above, or (b) is the only employee who holds the position or performs the functions of (i) President, (ii) COO, (iii) CFO, (iv) chief human resources officer, (v) chief information officer, chief technology officer, or chief legal officer – unless the employee is not a manager.
Additional Provisions Proposed
Other provisions in the Notice include that:
- reprisals are prohibited (an employer cannot dismiss, lay off, demote, or discipline an employee because they refused to agree to or comply with a non-compete clause or other employment-related restriction, or take their refusal into account in deciding to promote or train that employee), unless the promotion is subject to an exemption;
- employers have the burden of proof to show in Canada Labour Code proceedings, that the clause or restriction was not a non-compete clause or other employment-related restriction, if argued.
Takeaways & Employer Considerations
The Notice reflects a continued trend toward restricting non-compete clauses in Canada. In 2021, Ontario amended its employment standards legislation to prohibit non-compete clauses. A similar restriction is now being introduced in the federally regulated sector.
It remains to be seen whether the draft amendments will be enacted, and if so, in what form, including what may be prescribed as a prohibited employment-related restriction. In the meantime, employers should treat the Notice as an indication of the direction of non-compete clauses and consider alternative ways to protect their business interests. Although non-compete clauses might be enforceable through the common-law in other jurisdictions such as Alberta, employers ought to be mindful of this evolving legal landscape moving forward.
Footnotes
1 Canada Strong Budget 2025, November 4, 2025 (available here).
2 Notice of Ways and Means Motion to introduce a bill entitled A second Act to implement certain provisions of the budget tabled in Parliament on November 4, 2025: (available here).
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