Prime Minister Carney’s government released its first budget on November 4, 2025, and it notably includes a proposal to restrict the use of non-competition clauses (“non-competes”) by federally regulated employers. In particular, the 2025 federal budget states that “the government intends to amend the Canada Labour Code to restrict the use of non-competes in employment contracts for federally regulated businesses”.
Background
Non-competes are a type of “restrictive covenant” (a contractual provision that restricts a person from doing something) commonly included in employment contracts, which essentially provide that the employee is not permitted to compete with the employer’s business for a certain period of time after the employment relationship ends. Other restrictive covenants, which are even more common, include: (i) non-solicitation clauses, which restrict an employee from soliciting the customers, employees and/or contractors of the employer for a certain period of time post-employment; and (ii) confidentiality clauses, which preclude an employee from using or disclosing any of the employer’s confidential information post-employment.
Notably, non-competes are rarely enforced by Canadian courts, even in Canadian jurisdictions where there is no legislation restricting the use of non-competes. This is because there is a presumption at common law that non-competes are legally unenforceable, as they are considered a restraint on trade and against public policy. In other words, the courts are loathe to enforce non-competes because they can prevent workers from getting a new job, thereby reducing the efficiency of labour markets and negatively impacting the economy. In this regard, non-competes are considered far more restrictive than non-solicitation clauses and confidentiality clauses, because non-competes can potentially prevent a worker from obtaining new work in their industry for an extended period of time. Conversely, non-solicitation clauses and confidentiality clauses simply require workers not to solicit certain customers/employees or to misuse their previous employer’s confidential information at any new job.
Ultimately, a non-compete will only be legally enforceable under the common law where: (i) an employer cannot adequately protect their legitimate business interests through other restrictive covenants, like non-solicitation and confidentiality clauses; (ii) the non-compete is clear and unambiguous; and (iii) the non-compete is “reasonable” in terms of the scope of the activities that it prohibits, the length of time it lasts, and the geographic area to which it applies.
Aside from these common law restrictions, only one Canadian jurisdiction has implemented a general ban on non-competes through legislation—Ontario. Ontario amended its Employment Standards Act, 2000 (“ESA”) in October of 2021 to generally prohibit employers from including a non-compete in any employment contract or other agreement with an employee, and making such non-competes void. However, Ontario’s ESA does includes exceptions under which non-competes are still permitted for any employee who is an “executive” (which is essentially defined as any employee in a c-suite position), or where the non-compete is entered into as part of a sale of business in which the seller of the business commences employment with the purchaser immediately after the sale.
Proposed Restriction on Non-Competes for Federally Regulated Businesses
The federal budget provides few details as to the scope of the proposed restrictions on the use of non-competes by federal employers, when the restrictions may come into effect, or whether there will be any exceptions to the restrictions. In that regard, the budget only states that the government will launch consultations regarding the proposed restrictions in “early 2026”. This suggests that proposed amendments will not be tabled until mid 2026 at the earliest, and that the scope of the restrictions will not be determined until consultations with the public have been completed.
Beyond that, the budget simply states that the purpose of the restrictions is to “foster innovation and productivity” via “competitive labour markets”, and that restricting non-competes will “protect workers’ rights, promote labour mobility, strengthen competition, and empower workers to move to higher-paying jobs or start their own business”.
Thus, the scope of the proposed restrictions and timeline for them to come into effect remains to be seen.
The Bottom Line
Employers in the federal sector which make use of non-competes to protect their legitimate business interests should consider making their voices heard during the consultation process, as there is still an opportunity to persuade the government that a blanket prohibition on non-competes without exceptions similar to those in Ontario would not be good for business. In this regard, if the government does ultimately create an exception whereby non-competes can continue to be included in employment contracts for executives or in sales of business, then the disruptions caused by the restrictions would be minimal, in that non-competes are rarely enforceable outside of those circumstances in any event.
Federally regulated employers should also monitor the progress of these proposed restrictions and, where possible, ensure that they implement non-solicitation and confidentiality covenants sufficient to protect their legitimate business interests in advance of such restrictions being implemented. This will help ensure that such employers are prepared to comply with any new restrictions while still protecting their legitimate business interests to the greatest extent possible.
If you require any assistance related to implementing or enforcing restrictive covenants in order to protect your business, please do not hesitate to contact us for expert advice and representation.
