Sweeping Changes Proposed To Non-Compete Clauses For Federally Regulated Employers

Restrictive covenants in employment contracts typically come in three forms: non-compete, non-solicit and confidentiality clauses. These covenants, often referred to as “restraints of trade,” have long been scrutinized by Canadian courts.

In May 2026, the federal government introduced Bill C-31, which proposes sweeping reform to the Canada Labour Code that would prohibit non-compete clauses and other post-employment restrictions for federally regulated employers.

What Federally Regulated Employers Need to Know Now

• Bill C-31 is not yet in force. If enacted, there will be a one-year transition period from the date the amendments come into force. Employers will be immediately prohibited from entering into new non‑compete clauses, but existing clauses will remain temporarily in force and will be rendered void after the one‑year transition period.
• The proposed legislation would broadly prohibit non-compete clauses, with limited exemptions for specified senior executives and sale-of-business transactions and include anti-reprisal protections for employees.
• Employers will have the burden to prove one of the exemptions applies.
• The proposed changes will likely require revisiting employment agreements, compensation plans, and restrictive covenants for senior executives.

The Proposed Amendments to the Canada Labour Code

If enacted, Bill C-31 would amend the Canada Labour Code to prohibit federally regulated employers from agreeing to, or imposing, a non-compete clause (subject to limited exemptions) or “other employment-related” restriction with an employee. The term “non-compete clause” is broadly defined in the proposed legislation. It includes any employment term or clause in an agreement that prohibits an employee from engaging in any business, work, occupation or trade, profession, project or activity that is in competition with the employer’s business after the employee ceases to be employed.

The amendments also prohibit “other employment-related restrictions”, which are yet to be defined. This broad and evolving prohibition could capture other contractual terms deemed to unreasonably restrict employees after the end of their employment.

There are two important exemptions to the proposed ban on non-competes and employment-related restrictions:

• Executive-Level Employees: the Chief Executive Officer and specific executives who report directly to the Chief Executive Officer such as Chief Operating Officers, Chief Financial Officers and Chief Legal Officers (and other prescribed positions), provided they are managers and the only employee who holds their position.
• Sale of Business Transactions: persons who sell their business (or any part of it) to an employer and immediately become an employee of that employer, provided the employee agrees to the non-compete or other employment-related restriction clause as part of the transaction and the business is federally regulated.

The proposed amendments also leave the door open to further define the class of employees exempt from the prohibitions or any of the terms related to the non-compete and other employment related restrictions.

If Bill C-31 is passed, existing non‑compete clauses will remain in force for one year after the amendment comes into force, after which time such clauses will be rendered null/void. This means employers will have limited time to review contractual provisions and ensure compliance with the new legislation if it comes into force.

Reprisal Protections and Employers’ Burden of Proof

Under the proposed regime changes, employers would be prohibited from taking adverse actions against an employee for refusing to agree to or comply with a non-compete clause or other employment-related restriction, such as disciplinary actions (including dismissal) or considering such refusal in any promotion decision.

In the event of an alleged violation of the proposed ban on non-competes and other employment-related restrictions, employers have the burden of proving the impugned clause is not void (or null in Quebec).

Broader in Scope than Ontario’s Non-Compete Ban

In October 2021, Ontario was the first Canadian jurisdiction to ban non-competes under the Employment Standards Act, 2000 (the ESA). See our prior discussion on such legislative changes here.

While the class of exempted employees in Bill C-31 is similar to the class exempted under the ESA non-compete ban, Bill C-31 proposes notably broader prohibitions under the Canada Labour Code. In particular:

• Bill C-31 would ban not only non-competes for federally regulated employers, but also a broader (currently undefined) category of “other employment-related restrictions” that unreasonably restrict the ability of employees to engage in any business or other activity.
• The reprisal protections and the employer’s burden of proof to justify enforceability of a non-compete or other employment-related restriction go beyond Ontario’s legislative regime.
• Unlike the prohibition on non-compete clauses under the ESA, the restrictions in Bill C-31 would apply retroactively to non-compete clauses that were negotiated and accepted by employees prior to the legislation coming into force (once the one-year transition period elapses).

What Employers Can Do Now

As Bill C-31 is still in the early stages of the legislative process, and a one-year transition period is anticipated in the event that it becomes law, federally regulated employers would be well-served to take this opportunity to review non-compete and other restrictive covenants in their employment-related contracts and incentive/equity plans and identify those that may need to be revised if Bill C-31 becomes law. For employees (particularly key employees and senior managers) who do not fall within the limited exemptions, employers may need to bolster confidentiality and non-solicitation covenants in their existing employment agreement templates, as well as intellectual property-related agreements to ensure their business interests are sufficiently protected going forward.

Any remaining non-compete clauses for permitted employees after Bill C-31 comes into force will still need to be clearly drafted and sufficiently limited in scope (i.e., with respect to time, geography and definition of competitive work) in order to be considered enforceable.