Bill C-31’s proposed amendments to the Canada Labour Code signal a shift in the regulation of workplace restrictive covenants in Canada. If enacted, the legislation would significantly limit the use of non-compete clauses for federally regulated employers and continue a broader national trend favouring employee mobility and labour market competition.

For employers operating in federally regulated industries, including banking, telecommunications, and transportation, the proposed changes could require a reassessment of employment agreements, executive contracts, and post-employment restriction strategies.

What Bill C-31 proposes

Bill C-31 would amend the Canada Labour Code to broadly prohibit employers from entering into or enforcing non-compete clauses and certain “other employment-related restrictions” that limit an employee’s ability to work for or operate a competing business after the employment relationship ends. The proposed legislation defines “non-compete clause” broadly. Notably, the amendments are designed not only to invalidate traditional non-competes but also to potentially capture other forms of contractual restrictions that may unreasonably impair labour mobility by way of future regulation.

The proposed changes also include anti-reprisal protections for employees, prohibiting employers from dismissing, disciplining, demoting, or otherwise disadvantaging employees who refuse to agree to an unlawful non-compete provision.

The legislation places the burden on employers to establish that a disputed restriction is permissible under, including whether it falls within one of the permitted categories of exception.

Key exceptions to the proposed amendments

Although the legislation would dramatically restrict the use of non-compete clauses, it preserves several important exceptions.

How the federal changes compare with Ontario’s non-compete prohibition

Ontario was the first Canadian jurisdiction to prohibit most employment-related non-compete clauses through amendments to the Employment Standards Act, 2000 that came into force in 2021. While the approach being taken at the federal level is similar, there are some key differences that employers should note.

First, Bill C-31 appears broader in scope than Ontario’s legislation. In addition to prohibiting traditional non-compete clauses, the federal proposal contemplates restricting additional categories of “other employment-related restrictions” through future regulations where those restrictions are viewed by the Governor in Council as unreasonably limiting employee mobility.

Second, while Ontario’s legislation contains similar primary exception categories (sale-of-business transactions and executives), the proposed federal amendments include more detailed executive categories and expressly places the burden on employers to justify the enforceability of any disputed restriction (which is a statutory codification of the common law burden).

Third, Bill C-31 includes proposed anti-reprisal protections and transition provisions addressing existing agreements, which would surpass the worker protections found in Ontario’s legislative framework.

What federally regulated employers should do now

Although the amendments are not yet in force, Bill C-31 provides a clear indication of where this segment of federal legislation is heading. Employers should not wait for final implementation before reviewing their employment agreements for restrictive covenants generally and non-compete clauses specifically. Some practical considerations include:

DLA Piper will be closely monitoring the development of Bill C-31 and will provide updates as they become public.