Non-Competition Clauses in Canadian Employment Law and the Doctrine of Inequality of Bargaining Power

In 2021, the Ontario government legislatively prohibited most noncompetition clauses, the first Canadian government to take this step. The move was unexpected because the political party in power (the Progressive Conservative Party, or PCP) has not traditionally been a strong supporter of workers’ rights. However, the PCP wanted to demonstrate a new commitment to the working class, and it knew that banning non-competition clauses would attract little backlash from its business constituency since the common law renders almost all noncompetes illegal in Canada anyway. The common law approach to the enforceability of non-competition clauses is similar in Canada and the United States. Courts in both countries are suspicious of these clauses because they restrict the right of workers to accept jobs within their field. However, Canadian courts are far less likely to enforce non-competition clauses than their American counterparts. This divergence can partly be explained by fundamental differences in employment law architecture, including the fact that a doctrine of inequality of bargaining power guides Canadian courts. This doctrine, developed primarily by the Supreme Court of Canada over the past half-century, is comprised of both a descriptive and a normative element. Descriptively, the doctrine recognizes (1) that work has a psychological component and is integral to human dignity, personal identity, and self-worth in Canadian society; and (2) that the employment relationship is frequently characterized by inequality of bargaining power. Normatively, the doctrine of inequality of bargaining power posits that, due to the importance of work and the reality of inequality of bargaining power, the common law should develop in a manner that considers the vulnerability of employees. Relying on the doctrine of inequality of bargaining power, Canadian courts have refused to sever or rectify unreasonable and over-broad noncompetition clauses. This refusal marks a substantial divergence from courts in the United States, where courts routinely intervene on behalf of employers to read down unreasonable non-competition clauses to make them enforceable. This Article examines the treatment of noncompetition clauses in employment contracts through a comparative lens, explaining how Canadian courts (and now legislators) have demonstrated much less tolerance for contractual restrictions on the right to work.

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