Restricting Covenants in Federal Workplaces

Status of Proposed Updates

Bill C‑31, the Budget 2025 Implementation Act, No. 2, intends to amend the Canada Labour Code to prohibit most non‑compete clauses, and certain other employment‑related restrictions, in federally regulated workplaces.

Bill C‑31 passed second reading in the House of Commons on June 3, 2026 and has been referred to the Standing Committee on Finance. While now progressing rapidly through the legislative process, the bill must still pass third reading in the House of Commons, followed by three readings in the Senate, before receiving Royal Assent.

Importantly, the proposed amendments to the Canada Labour Code do not come into force on Royal Assent. Instead, they will come into force on a later date to be fixed by order of the Governor in Council (i.e., proclamation).

The coming into force provisions proposed in the bill create a one-year transition period.  In effect, once the bill is proclaimed, employers will be immediately prohibited from entering into new non‑compete clauses or other prescribed employment-related restrictions, but existing clauses remain temporarily in force and are only rendered void after the one‑year transition period.

The proposed legislation closely mirrors similar statutory prohibitions regarding non-compete agreements under Ontario's Employment Standards Act, 2000.

Summary of Key Provisions

The amendments introduce a new Division to the Canada Labour Code titled "Non‑Compete Clauses and Other Employment‑Related Restrictions".

Scope of Division XI.1

The proposed amendments will prohibit employers from agreeing to, imposing, or inducing an employee to agree to a non‑compete clause or other employment‑related restriction.

A "non‑compete clause" is defined as any term or condition of employment, or clause in an agreement, that prohibits an employee from engaging in competing work or activities after the employment relationship ends.

"Other employment‑related restrictions" is defined as a term or condition of employment, or a clause in an employment agreement that is not a non‑compete clause but is part of a class by regulation. While not yet defined by regulation, this catch-all term signals that the prohibition will not be limited to traditional non‑competition clauses, but will likely extend to other forms of post-employment restraints which may include non-solicitation, non-interference, non-acceptance or no-hire clauses.

Impact of Prohibitions

Non‑compete clause or other employment‑related restriction prohibited by these updates will be rendered void (or null in Quebec). Notably, existing non-compete clauses and other employment-related restrictions will not be grandfathered in beyond the one-year transition period.

The framework is reinforced by two key mechanisms.

• First, the burden of proof rests with the employer: In any proceeding, the employer must establish that a clause is not a prohibited non‑compete or employment‑related restriction, or that it is not void.
• Second, the legislation includes anti‑retaliation protections: Employers are prohibited from dismissing, disciplining, demoting or otherwise disadvantaging an employee because the employee refused to agree to or comply with a prohibited clause, or from factoring that refusal into promotion or training decisions (subject to limited exceptions).

Exemptions

The legislation contains four targeted exemptions, which preserve the ability to use non‑compete clauses in limited, clearly defined circumstances.

Sale of business transactions

An employer may impose a non-compete clause as part of a lease or sale of business transaction, if the covenantor sold, leased or transferred their interest and the covenantor becomes an employee immediately following that transaction.

As currently drafted, this limited exemption would not permit a non-compete clause or other employment-related restriction on the vendor's employees unless they have an equity interest in the work, undertaking or business being leased or transferred.

Chief Executive Officers

A non‑compete clause is permitted for an individual who holds the CEO position or performs the functions of that role. This is a narrow, role‑specific exemption that reflects the understanding that CEOs are uniquely positioned to affect an organization's strategic direction and competitive position.

Senior Executives Reporting Directly to the CEO

A limited group of senior executives are also exempted if they satisfy the following requirements:

• the employee must report directly to the CEO;
• the employee must be the only individual holding the position or performing the functions of President, Chief Operating Officer, Chief Financial Officer, Chief Human Resources Officer, Chief Information Officer, Chief Technology Officer or Chief Legal Officer; and
• the employee must qualify as a "manager" within the meaning of section 167(3) of the Canada Labour Code. This prevents the exemption from applying to employees who hold a title but do not exercise managerial authority in substance.

Regulation‑based Executive Exemption

The proposed amendments include an expanded class of exempted positions, to  be specified in the regulations. To be included in these regulatory exemptions, the Governor in Council must be satisfied that the negative impact on employers of not allowing non‑competes for those roles outweighs the impact on employees. This creates a controlled mechanism to expand the exemption in the future, but only where justified on a policy basis.

Compare and Contrast: Canada Labour Code vs Ontario Employment Standards Act, 2000

The proposed amendments to the Canada Labour Code follow the policy approach adopted in Ontario. Since October 25, 2021, Ontario's employment standards legislation has restrained employers from entering into non‑compete agreements with employees. However, there are important distinctions between these statutes, as summarized below.

• Similarities between the Federal statute and Ontario employment standards
  • Both statutes permits non‑competes in connection with a sale of a business where the vendor becomes an employee of the purchaser.
• Differences between the Federal statute and Ontario employment standards

Canada Labour Code (Bill C-31)	Ontario Employment Standards Act, 2000
Prohibition includes non-compete clauses and other employment-related restrictions	Prohibition limited to non-compete agreements
Prohibition limited to post-employment activities	Prohibition includes non-compete agreements before, during, and after employment
No grandfathering – existing non-compete clauses will be rendered void after one-year transition period	Grandfathers non-compete agreements entered into before October 25, 2021
Exemption limited to enumerated senior executive positions; one individual in each position; and requirement that executive satisfy statutory definition of management status	Potentially broader exemption for "executives" and not limited to one individual in each position

Employer Takeaways

We will continue to monitor the progress of Bill C‑31, including committee review, potential amendments and the coming‑into‑force timeline, and will provide further updates as developments arise, and in particular regarding what is captured in the legislation by "other related restrictions".

In the interim, employers can take steps to prepare for the implementation of these amendments to the Canada Labour Code, including by ensuring senior executives with these covenants report directly to the CEO, reviewing other options to protect the organization's business (confidentiality agreements) and reviewing employee access to proprietary information that may be used in competition (i.e., client lists, pricing details, operating processes).

If you have any questions about any of the issues discussed in this post, or if we can help advise your business on similar or other employment or labour-related issues, please contact one of the authors, or another member of the Bennett Jones Employment Services group, for more information.