Proposed federal legislation, Bill C-31, aims to prohibit non-compete clauses for most employees in federally regulated sectors, including banking, telecommunications, and transportation. According to the draft text, the bill introduces anti-reprisal protections and places the legal burden on employers to justify any remaining restrictive covenants, signaling a significant shift toward increased labour market mobility in Canada.
How Bill C-31 Changes Federal Employment Law
Bill C-31 proposes a broad prohibition on non-compete clauses for federally regulated employers. The legislation defines these clauses expansively, intending to capture not only traditional non-competes but also other contractual restrictions that effectively limit an employee’s ability to work for a competitor. According to legal analysis by DLA Piper, this move aims to prevent employers from using “other employment-related restrictions” to bypass bans on traditional non-competes.
Which Employees Remain Subject to Non-Competes?
The legislation includes specific carve-outs to protect business interests. According to the bill’s provisions, senior executives—including CEOs, CFOs, CTOs, and their direct reports—remain exempt from the prohibition. Additionally, the bill preserves the right to use non-compete clauses in the context of sale-of-business transactions. This exception acknowledges the established legal principle that purchasers require protection for the goodwill acquired during a commercial deal.
Comparing Federal Reforms to Ontario’s Framework
While Ontario previously implemented its own restrictions on non-competes, Bill C-31 introduces more stringent requirements. According to a comparison by DLA Piper, the federal proposal distinguishes itself in three primary ways:
- Specificity: The federal bill provides a more detailed list of exempt executive roles.
- Burden of Proof: It codifies into statute the requirement that employers must justify the enforceability of any disputed restriction.
- Protection: The bill includes explicit anti-reprisal provisions, preventing employers from disciplining staff who refuse to sign unlawful agreements.
Steps for Federally Regulated Employers
Employers should prepare for a one-year transition period following the bill’s eventual coming-into-force date. During this time, existing non-compete clauses will remain valid until the period expires. Experts recommend shifting the focus toward carefully drafted non-solicitation provisions. These should clearly distinguish between clients personally serviced by the employee and the broader company client base to avoid being characterized by courts as “de facto” non-competes.
Frequently Asked Questions
Does Bill C-31 apply to all Canadian workers?
No. The bill specifically amends the Canada Labour Code, meaning it only applies to federally regulated industries such as banking, telecommunications, and interprovincial transportation.
What happens to existing non-compete agreements?
The legislation includes a one-year transition period after the law comes into force. During this time, existing agreements remain enforceable, but they will become void once the transition period concludes.
Can I still use non-solicitation clauses?
Yes. Non-solicitation clauses remain a primary tool for protecting business interests, provided they are reasonable in scope, duration, and geography.
Stay informed on the latest regulatory changes affecting your workforce. Subscribe to our newsletter for updates on Bill C-31 and other developments in employment law. Have questions about your specific contracts? Contact our legal team today.
