Part 2: The Executive Exception and the Rise of Non-Solicitation
Part 1 of this series analyzed the statutory prohibition on non-competes, the governing commercial exception affirmed by the Dr. C. Sims Dentistry Professional Corporation v. Cooke decision, and the limitations of legacy contracts. It established that, for most employment relationships, the broad non-compete is no longer a viable legal option.
While non-compete clauses are being eliminated for the general workforce, employers are not left without protection. Instead of relying on the blunt instrument of control, a change in strategy is required, necessitating a shift to precise tools for safeguarding business interests. In the absence of a non-compete, the protection of a business’s proprietary interests relies on three pillars: the statutory “Executive” exception, the surgically drafted Non-Solicitation Agreement, and the common law duties of fiduciaries.
This second installment deconstructs these three pillars. It explores the strict statutory definition of “Executive,” the drafting pitfalls that render non-solicitation clauses void, and the powerful, often overlooked protections inherent in the common law.
The “Executive” Exception: Defining the C-Suite
The Working for Workers Act introduced a specific exception permitting non-compete agreements for employees who hold an “executive” position. This exception recognizes that senior leaders possess a unique ability to harm a business through their strategic knowledge and market influence. Unlike the average employee, an executive who defects to a competitor can leverage an intimate understanding of the company’s long-term strategy, pricing models, and vulnerabilities.
The Employment Standards Act (ESA) defines this exception strictly. It applies to any person who holds the office of Chief Executive Officer, President, Chief Administrative Officer, Chief Operating Officer, Chief Financial Officer, Chief Information Officer, Chief Legal Officer, Chief Human Resources Officer, or any other Chief executive position.
This statutory language suggests a high bar. The inclusion of the phrase “any other Chief executive position” should not be interpreted as a loophole for inflating job titles. The courts in Ontario have consistently looked to the substance of an employment role over its title. A “Chief of Sales” or “VP of Operations” who lacks genuine strategic oversight and C-level authority may not qualify for the exception, rendering their non-compete void.
Furthermore, qualifying for the executive exception merely clears the statutory hurdle; it does not guarantee enforceability. An executive non-compete is still subject to the common law test of reasonableness. A global non-compete for a CEO of a regionally focused company is likely to be struck down as contrary to public policy. The restriction must be tailored to the specific geographic and temporal scope necessary to protect the employer’s legitimate interests.
The Strategic Pivot: Non-Solicitation Agreements
With the non-compete removed from the toolkit for 95% of the workforce, the Non-Solicitation Agreement has become the primary contractual defence for Ontario employers. It is crucial to distinguish this from a non-compete. A non-compete prohibits working for a competitor; a non-solicit prohibits actively pursuing the employer’s clients or employees.
Courts view non-solicitation clauses more favourably because they do not prevent the individual from earning a living in their chosen field. However, they are subject to strict scrutiny regarding their precision. A common error in drafting is the inclusion of language that prohibits an employee from “accepting” business from a former client.
The courts have frequently held that prohibiting the “acceptance” of business functions is a de facto non-compete. If a client, of their own volition, chooses to follow a departing employee to a new firm, a clause preventing the employee from accepting that work restricts their ability to trade and limits the client’s freedom of choice. For a non-solicitation clause to be enforceable, it must target the employee’s active conduct, such as soliciting, inducing, or encouraging clients to leave, rather than merely the passive acceptance of their business.
The “Janitor Clause” and the Danger of Overbreadth
The most common reason restrictive covenants fail in court is overbreadth. This is best illustrated by the concept of the “Janitor Clause.” A court is likely to deem a restrictive covenant unreasonable if its terms are so broad that they prevent a former employee from working for a competitor in any capacity, even a role entirely unrelated to their former duties, such as a janitor.
This principle was reinforced by the Ontario Court of Appeal in M & P Drug Mart Inc. v. Norton. In that case, a non-compete was struck down because the language prevented the pharmacist from being “concerned with or interested in” a competing business. The Court reasoned that this language was broad enough to prevent the pharmacist from being a passive shareholder or working in a non-pharmacy role at a location that happened to have a pharmacy.
The absence of the “Blue Pencil” rule in Canadian law is a key point, as confirmed by the Supreme Court’s decision in Shafron v. KRG Insurance Brokers. Ontario courts generally will not “blue pencil” or edit a defective clause to make it legal. They apply the doctrine of “notional severance” very sparingly. If a clause is 1% too broad, the entire clause is struck, leaving the employer with zero protection. Therefore, drafting in 2025 requires surgical precision. The clause must specifically define the prohibited activity and limit it to roles that actually compete with the employer.
The “Invisible” Contract: Fiduciary Duty
For employers who find themselves without a written contract or with a contract that has been deemed void, the common law provides a safety net in the form of fiduciary duty.
Certain senior employees are classified as “fiduciaries” under common law. These are individuals who hold a position of special trust and confidence, typically those with the authority to unilaterally affect the company’s legal or financial interests. This usually includes the C-Suite and key senior management.
Fiduciaries owe a duty of loyalty that extends beyond their employment. Even in the absence of a written Non-Solicitation Agreement, a former fiduciary is prohibited from soliciting the employer’s clients, poaching employees, misusing confidential information, or usurping corporate opportunities for a reasonable period after their departure. This duty prevents a senior leader from using their former employer as a “springboard” for their own competing venture. While relying on implied duties is less secure than a written contract, it remains a potent remedy for businesses facing aggressive competition from former key leaders.
The Consideration Trap: Updating Your Contracts
Understanding the law is only half the battle; implementing it is the other. Many employers, upon realizing their templates are outdated, seek to have existing staff sign new, compliant agreements. This presents a significant legal hurdle known as “consideration.”
Under contract law, an amendment to an existing contract requires “fresh consideration” to be valid. Continued employment is generally insufficient consideration in Ontario. If an employer presents a new contract to a current employee that contains a restrictive covenant and offers no compensation in return, that covenant is likely to be unenforceable. To make the update binding, the employer must provide something of tangible value, such as a signing bonus, a salary increase, a grant of stock options, or a promotion.
Attempting to force an employee to sign a new restrictive covenant under threat of termination is a high-risk strategy that can trigger claims for constructive dismissal. The transition to compliant contracts must be managed as a delicate process involving both HR and legal considerations, ensuring that the exchange of value is documented and sufficient.
Moving Forward in the Modern Employment Landscape
The legal landscape regarding restrictive covenants has shifted from a model of broad restraint to one of specific protection. The Working for Workers Act and subsequent case law have not eliminated the ability to protect a business; they have simply raised the standard of competence required to do so.
For the modern Ontario employer, the path forward involves a threefold strategy.
- Reserve non-compete agreements strictly for the two categories where they remain valid: the sale of a business and the C-Suite.
- Audit and redraft non-solicitation clauses to ensure they focus on active solicitation and avoid the “acceptance” trap.
- Implement robust confidentiality and intellectual property assignment agreements for the entire workforce, creating a baseline of protection that survives any challenge to the restrictive covenants.
The era of the boilerplate contract is over. Going forward, protection comes from precision.
Bader Law: Providing Innovative Business & Employment Law Solutions in Oakville & Mississauga
Protecting your business in Ontario’s post-prohibition landscape requires more than outdated boilerplate agreements. Bader Law helps employers navigate the executive exception, craft enforceable non-solicitation clauses, and leverage fiduciary duties and confidentiality protections to safeguard their competitive position. If you are revising employment contracts, assessing risk, or responding to a departing employee, contact our team of employment lawyers online or call (289) 652-9092 to book a consultation.