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opinion

The “great resignation” trend that’s playing out in North American labour markets is sounding the death knell for non-compete agreements.

Companies use these restrictive employment contracts or covenants to prevent employees from sharing commercial secrets with rivals, or to thwart workers from starting competing businesses. But as more people call it quits on their jobs – and legislators in key jurisdictions, including Ontario, propose to ban non-compete clauses – the future of such agreements is in doubt.

The pandemic-induced retrospection about work, which is also being dubbed the “great reconsideration,” is putting more power in the hands of employees. This social awakening, coinciding with a tight labour market, is forcing businesses to compete for top talent.

Workers looking for change are demanding more flexibility, higher wages and better working conditions from prospective employers. But even those staying put are pushing for a better deal from their bosses. Labour unrest is on the rise, spurring the “striketober” movement in the United States.

Canadians aren’t oblivious. So, it should come as no surprise to business leaders that newly empowered workers in both countries have zero tolerance for employment contracts or clauses that impede their future career advancement, mobility or earnings growth.

That’s why Ontario’s move to ban non-compete clauses is timely. It’s also politically advantageous for Premier Doug Ford, who is eager to burnish his man-of-the-people cred ahead of next June’s provincial election.

But let’s not give Mr. Ford too much credit, as he appears to be taking his cues from American legislators.

This past July, U.S. President Joe Biden signed an executive order that urged the Federal Trade Commission to “curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.” A number of U.S. states have also taken action to limit their use.

Labour-rights advocates have long argued that such clauses hurt wage growth, including for low-income workers. Remember the furor that erupted when American fast food chain Jimmy John’s tried to impose non-compete agreements on its sandwich makers? The company eventually relented.

Canadian business leaders need to read the tea leaves. The “great resignation,” labour shortages and the widespread acceptance of remote work have rendered labour mobility restrictions inappropriate. Just try to stop your workers from finding better jobs in this new work-from-anywhere world.

The enforceability of non-compete agreements and clauses was already in question prior to the pandemic. Courts in various jurisdictions, including Ontario, have been reluctant to uphold them.

In one 2017 case involving Ceridian Dayforce Corp., the Ontario Superior Court of Justice granted a partial summary judgment in favour of the employee, a software developer, declaring that the non-compete clause in question was “not reasonable, is unenforceable, not binding and void.”

There are no two ways about it: Businesses will be limited in their ability to impose non-compete agreements from here on out. For those same reasons, non-solicitation clauses that preclude employees from poaching staff from their former employers (for a set period of time and usually in a specified region) are likely the next casualties of the “great resignation.”

American workers have shown the most pluck in leaving their jobs. About 4.3 million of them voluntarily quit in August, setting a new record, according to the U.S. Bureau of Labour Statistics.

Canadians’ inclination to leave the work force appears to be more anecdotal. The Bank of Canada’s latest survey of consumer expectations and its business outlook survey suggest people are more willing to switch jobs or resign by choice for reasons such as retirement. A record 19.2 per cent of respondents suggested they are willing to leave a job voluntarily in the next 12 months, according to the central bank’s consumer survey.

Although the “great resignation” trend wasn’t borne out by Statistics Canada’s latest labour force survey, a greater share of core-age workers between the ages of 25 and 54 who left a job cited “personal or family reasons” in September, 2021 (26.1 per cent), compared with September, 2019 (23 per cent), the federal agency said.

Those reports may be giving us a glimpse of what’s to come.

We know, for instance, that the pandemic has pushed people to the point of emotional exhaustion. There are signs that white-collar workers in Toronto’s financial district are experiencing burnout and mulling career changes. Recent research from LifeWorks and Deloitte Canada found that business and public sector leaders are also pondering whether to leave their jobs.

Ontario’s proposed amendments to the Employment Standards Act provide a blueprint for other provinces also keen to attract high-skilled workers in technology and other sectors. Legislators would be foolish to squander this opportunity to make political hay, especially now that Ontario is making waves.

Sorry, bosses, the “great resignation” trend is sealing the fate of non-compete agreements. Get used to it. It’s a worker’s market after all.

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