Matt Malone is a research associate at the Centre for Law, Technology and Society at the University of Ottawa.
Ontario’s Minister of Labour, Training and Skills Development, Monte McNaughton, has done Ontario a huge favour by proposing to abolish noncompete agreements. The proposed amendments to the province’s Employment Standards Act will make Ontario workers richer, the economy more prosperous, and the province more innovative.
But the bill should go even further.
In its current form, the bill adds a powerful amendment to the Employment Standards Act. The new provision states: “No employer shall enter into an employment contract or other agreement with an employee that is, or that includes, a noncompete agreement.” It states that such agreements are void.
This provision will unshackle labour and greatly enhance employee bargaining power, in particular vis-à-vis powerful employers in the tech and finance sectors. It also resolves a systematic weakness of our courts, which have largely done a terrible job at reigning in abusive non-competes. That’s because the courts review such agreements by assessing the “reasonableness” of each one. This agreement-by-agreement analysis has invited widespread abuse of non-competes by employers, since every single agreement cannot be litigated (and litigation is expensive for employees).
Mr. McNaughton’s proposed amendment will help stanch the brain drain of many of our best and brightest employees to jurisdictions that already ban non-competes, such as California. In an era when jurisdictions are competing for the best employees, the proposed legislation will encourage other provinces to do the same. This empowers workers everywhere.
Yet the bill is not perfect. It should be strengthened in a few critical ways.
First, the bill has an education problem. Employees gaining new employment rights should be informed about those rights. Here, the bill presents a significant change to the Employment Standards Act without letting employees know about it. Washington solved this problem when it passed its own noncompete ban by requiring employers to provide written notice to all employees that existing noncompete agreements had become void. Its ban required employers notify employees about the change in the law within 90 days. It also requires employers notify new employees within seven days of their start dates that non-competes are void. Ontario’s law should do the same.
Second, the bill needs to be expanded to include not just non-competes but all contractual restrictions that restrain employees from engaging in a lawful profession, trade, or business of any kind (collectively known as restraints on trade). Non-competes are only one subset of restraints on trade. Ontario should reign in other such restraints, like nondisclosure agreements, which are often used to muzzle employee victims of sexual and emotional harassment and abuse.
Similarly, the bill should be reformed to void non-solicitation agreements that prevent departing employees from “poaching” customers or other employees. As the experience in other jurisdictions shows, allowing such carveouts – as the current Ontario bill permits – results in employers simply filing their lawsuits against departing employees under the guise of non-solicits and nondisclosure agreements. The law should not let them do so.
Finally, the bill should include penalties for employers who knowingly require employees sign non-competes. In its current form, the bill simply states noncompete agreements are “void.” Although the proposed amendment says requiring employees to sign them is forbidden, there is no penalty if they do so. Worse, many employees being asked to sign prohibited agreements may continue to do so without knowing about their protections under the new law.
Employers will push back against the bill. They will argue that restraints on trade like non-competes are needed to incentivize employers to entrust employees with trade secrets and confidential information. Don’t buy that argument. Stealing trade secrets and confidential information is already against the law in Ontario. For example, such acts are prohibited by duties of loyalty and confidentiality, and even criminal law. Employers do not need non-competes, non-disclosures, or non-solicits to protect their trade secrets and confidential information.
On balance, the bill is a great step forward for Ontario. It catches the province up with foreign jurisdictions and makes Ontario’s employment law more innovation-friendly than other Canadian jurisdictions. The Doug Ford government has taken an important move that no other government in Canada has been willing to take.
It’s a bold first step. Let’s be bold enough to make the next one.
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