Last month, the Minister of Finance and National Revenue tabled Bill C-31, Budget 2025 Implementation Act, No. 2 (“Bill C-31”). While Bill C-31 introduces amendments to various pieces of legislation, it notably includes a proposed ban on most non-compete clauses and other employment-related restrictions under the Canada Labour Code (the “Code”).
Bill C-31 most recently passed Second Reading in the House of Commons and was referred to the Standing Committee on Finance for consideration. Although Bill C-31 could still be subject to change through the legislative process, employers should familiarize themselves with its proposed amendments to the Code and consider preparing for the incoming changes, as these will significantly impact post-employment restrictions in federally regulated industries.
The Proposed Ban
As currently drafted, Bill C-31 would prohibit employers from (1) agreeing to a non-compete clause or other employment-related restriction with an employee or trade union, or (2) imposing a non-compete clause or other employment-related restriction on an employee, including by inducing the employee to agree to one.
The following key terms are explicitly defined in the legislation:
Non-compete clause means “a term or condition of employment, or a clause in an agreement, that prohibits the employee from engaging in any business, work, occupation or trade, profession, project or other activity that is in competition with the employer’s federal work, undertaking or business after the employee ceases to be employed”.
Other employment-related restriction means “a term or condition of employment, or a clause in an agreement, that is not a non-compete clause and is part of a class specified in the regulations”.
If the proposed ban is passed, non-compete clauses and other employment-related restrictions would be void, or null in Québec. The burden of proof would lay with the employer to prove that a term or condition of employment is not a non-compete clause or other employment-related restriction, or that it is not void.
Employees would also benefit from statutory protection against reprisals, as Bill C-31 expressly prohibits an employer from retaliating against employees who refuse to agree to or comply with a non-compete clause or other employment related restriction, including through dismissal, suspension, lay off, demotion or discipline.
The Proposed Exemptions
Bill C-31 sets out several narrow exemptions to the proposed ban, namely:
Sale of Business Exemption – The proposed ban would not apply in respect of a person who sells their business, or any part thereof, to an employer and immediately thereafter becomes an employee of that employer, if the person agrees to the non-compete clause or other employment-related restriction as part of the sale and the business is a “federal work, undertaking or business” or becomes one as a result of the sale.
C-Suite Executives Exemption – The proposed ban would also not apply in respect of:
- A Chief Executive Officer (CEO),
- Certain senior executives who report directly to the CEO, including a President, Chief Operating Officer, Chief Financial Officer, Chief Human Resources Officer, Chief Information Officer, Chief Technology Officer or Chief Legal Officer, provided the person is a managerial employee and is the only employee who holds or performs the functions of that position, and
- Any employees who report directly to the CEO and who hold or perform the functions of a position, or a position that is part of a class of positions, that is specified in the regulations.
Pending Regulatory Guidance
As currently drafted, Bill C-31 allows the following elements of the proposed ban framework to be determined by way of future regulation:
- For the purposes of the definition of “other employment-related restriction”, classes of terms or conditions of employment, or classes of clauses of agreements, that, in the Governor in Council’s opinion, unreasonably restrict the ability of employees to engage in any business, work, occupation or trade, profession, project or other activity,
- Definitions of any other terms for the purposes of the prohibition,
- Any terms and conditions to be imposed on the exemptions to the prohibition, and
- For the purposes of the C-Suite Executives Exemption, any additional classes of employees or positions to whom the prohibition does not apply where, in the Governor in Council’s opinion, the negative impact to employers from not specifying them outweighs the negative impact to the affected classes of employees or positions.
In the result, employers may receive additional detail and guidance on the scope of the proposed ban through future regulations.
Transitional Provision and Coming Into Force
Bill C-31 proposes a transitional provision under which existing non-compete clauses and other employment-related restrictions would not be impacted by the proposed ban for a period of one (1) year after its coming into force.
Bill C-31 also proposes that its amendments to the Code would come into force on a day to be fixed by order of the Governor in Council.
IN OUR VIEW
With Bill C-31, the federal jurisdiction would join Ontario as the only other Canadian jurisdiction with a statutory prohibition on non-compete clauses (with similar limited exceptions in both cases). The federal government’s stated goal in legislating the proposed ban is to “[allow] Canadians to change jobs more easily and [reduce] worker exploitation, while improving competition in the job market”. While this is undoubtedly important, the reality is that, if passed, the proposed ban will significantly impact post-employment restrictions in industries and workplaces covered by the Code.
Affected employers can nevertheless begin taking steps to ensure the continued protection of their business interests by:
- Reviewing current employment agreements and contract templates, as well as any equity and incentive plans containing restrictive covenants, with an eye to compliance,
- Reviewing organizational structures with respect to senior executives to determine whether the C-Suite Executives Exemption might apply, and
- Subject to regulatory guidance, considering non-prohibited alternatives to non-compete clauses (e.g., non-solicitation, confidentiality, intellectual property) as appropriate.
We will continue to monitor Bill C-31’s progress through the legislature and keep readers apprised of any significant changes in future Focus Alerts.
For more information, please contact Lauren Jamieson at (613) 404-5058 or Matthew Boem at (613) 286-3552.