The federal government recently introduced Bill C-31, Budget 2025 Implementation Act, No. 2, which proposes to add a new regime to the Canada Labour Code prohibiting, subject to limited exceptions, non-compete clauses in federally regulated workplaces. Another noteworthy aspect of the bill is that it also provides for regulation-making authority that could prohibit other restrictive clauses (“other employment-related restrictions”), the scope of which remains uncertain.
In other words, for federally regulated employers, now is the time to start paying close attention. This reform could redefine the tools currently available to them to protect their confidential information, business relationships and investments in human capital.
The implications are particularly significant in Québec. Unlike Ontario, where non-compete clauses are already widely prohibited by statute, the Civil Code of Québec has long recognized their validity when they are reasonable and limited to what is necessary to protect the employer’s legitimate interests. For many federally regulated businesses operating in Québec, Bill C-31 therefore represents a true paradigm shift.
A New Regime: How Bill C-31 Upends the Existing Framework
Bill C-31 adds a new division to the Canada Labour Code entitled “Non-Compete Clauses and Other Employment-Related Restrictions”. This new division prohibits an employer from agreeing to a non-compete clause with an employee or a trade union, imposing one, or inducing an employee to agree to one. Such clauses are considered null and void.
The bill also provides protections against reprisals for employees who refuse to agree to a prohibited clause, as well as a reversal of the burden of proof in certain proceedings.
However, similar to the approach taken in Ontario, the proposed regime includes certain exceptions, particularly in the context of certain business transactions as well as for certain senior executives holding specified positions.
Finally, another point deserves employers’ attention: clauses already included in employment contracts when the regime comes into force will not immediately become null and void. The bill provides for a one-year transitional period to allow the parties to adapt.
The date on which the provisions of the Canada Labour Code come into force remains unknown at this time. It will be fixed by order of the Governor in Council, which we expect will not occur for several months.
Québec on the Front Lines: Why Its Employers Are Especially Affected
Article 2089 of the Civil Code of Québec has long expressly recognized the validity of non-compete clauses in employment matters provided that they are limited in time, territory and scope, and remain necessary to protect the legitimate interests of the employer. This ability to include such clauses has formed an integral part of the legal framework governing Québec labour relations for many years.
As a result, while provincially regulated businesses will, in principle, continue to be able to rely on such clauses subject to the requirements of Québec civil law, many federally regulated employers could lose, overnight, a contractual tool that they currently consider a normal part of their business-protection strategy.
Banks, telecommunications companies, airlines and railway companies: all federally regulated organizations should closely monitor the progress of the bill and promptly assess its potential impact on their current practices.
The Bill’s Blind Spot: An Issue Broader Than It Appears
Curiously, the aspect of the bill that may have the most far-reaching consequences is also the one that has received the least attention.
Beyond non-compete clauses, the bill, in fact, opens the door to a prohibition on “other employment-related restrictions”. This class is not yet defined: the government reserves the power to specify, by regulation, certain conditions of employment or contractual clauses that unreasonably restrict the ability of employees to engage in a professional activity after the end of their employment.
It would be premature to conclude that certain specific clauses will necessarily be targeted. Nevertheless, this regulatory latitude creates real uncertainty for employers who rely on various contractual mechanisms, such as non-solicitation clauses, to protect their clientele, strategic information or key personnel.
Caution is therefore warranted. Employers should not confine their review to existing non-compete clauses: all of their post-employment protection mechanisms should be revisited.
Five Practical Steps to Take Now
1. Identify all non-compete clauses currently in force
The period before the potential coming into force of the new regime presents a window of opportunity: now is the ideal time to conduct a comprehensive inventory of existing non-compete clauses.
This exercise should make it possible to identify the employees concerned, the business sectors involved and the strategic importance of each of the clauses currently in use.
2. Review other documents containing post-employment restrictions
Be aware, however, that restrictive clauses are not always found where one might expect.
Employers should also review their incentive compensation plans, retention programs, internal policies and any other documentation that may contain restrictive covenants following the termination of employment.
3. Determine whether certain individuals may qualify for an exception
Some employers may take comfort in the fact that the bill provides for exceptions, including for the chief executive officer and certain officers holding specific functions.
Organizations currently using non-compete clauses for members of their senior management should start assessing now whether those individuals are likely to meet the criteria set out in the bill.
Another avenue to explore is whether adjustments to the organizational structure could allow certain employees to continue to qualify for an exception to the prohibition of non-compete clauses.
4. Strengthen protection mechanisms that would remain available
Employers are not without options. Even if non-compete clauses become widely prohibited, employers still have several legitimate means of protecting their business interests.
Depending on the circumstances, confidentiality clauses, intellectual property undertakings, certain non-solicitation clauses and, potentially, “garden leave” clauses could remain important tools. However, developments in the regulatory framework will need to be monitored before any definitive conclusions can be drawn regarding the future scope of certain restrictions.
5. Start preparing the next generation of contracts now
It is time to turn the page. If the bill is adopted, current employment contract templates may need to be substantially revised.
Employers would do well to start thinking now about which mechanisms they want to prioritize in the future to protect their legitimate interests while complying with the new legislative framework.
In Short: Better to Act Now Than to Improvise Later
Bill C-31 is set to significantly redefine the legal landscape applicable to federally regulated employers regarding post-employment protection.
Although the reform is not yet in force, affected organizations would be wise to take advantage of the current period to inventory their existing clauses, review their other protection mechanisms and develop a transition strategy.
It is clear that employers who act now will be in the best position, when the time comes, to make the transition to the new regime.
