Canada is killing the non-compete (sort of)

Bill C-31 signals a clear shift towards enhancing employee mobility and labour market competition nationwide

Bill C-31 IS currently making its way through Parliament in Ottawa, and it could mean an end to non-compete clauses in employment contracts. Well, sort of — it would apply only to federally regulated workplaces (think, banks, airlines, telcos and so on, although Ontario banned non-compete clauses in all other workplaces province-wide in 2021).

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The bill would, per HR Reporter, define a non-compete clause broadly, “as any term that prohibits an employee from engaging in any business, work, occupation, trade, profession, project or other activity in competition with the employer’s federal work, undertaking or business following the end of the employment relationship.”

What’s got HR folks excited is not just the end of non-competes in the narrow band of federally regulated industries, but also the possibility that by leading federally, Canada might finally be able to kill the non-compete nationwide.

“One jurisdiction will adopt a change, and then over time we see that being adopted in other jurisdictions,” said George Vuicic, partner at Hicks Morley in Toronto. “I wouldn’t be surprised if we start to see that play out elsewhere,” predicting that the NDP governments of Manitoba and British Columbia would be likely adopters of the trend

Many economists are also happy to see the non-compete go the way of the dodo as well. “[The] prohibition on non-compete clauses has done more to foster economic prosperity, growth and innovation than any government subsidy or handout,” wrote Matt Malone, for the CD Howe Institute in 2021, praising California’s ban on non-competes. “Knowledge spillovers are a critical factor in building vibrant and prosperous economies where innovation occurs. That requires letting employees job hop — something they cannot do when they’re shackled by restraints which prevent them for working.”

Malone reasoned that the only reason non-competes exist is to benefit the employer over the worker, who might otherwise be able to join (or become) the competition were it not for a non-compete. “Employers like to say non-competes are justified because they protect trade secrets,” Malone said. “But that’s not what non-competes do. They prevent people from working.”

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The flipside of the argument, in favour of non-competes, is that they incentivize companies to spend more on training. Researchers with the Smith School of Business at Queens University argue that insofar as non-competes disincentivize employer training, the workforce can become less skilled overtime. “Blanket bans on the enforcement of non-compete agreements may have short-term gains as workers flow into jobs in which they are more productive,” they wrote, “but have long-term consequences in terms of a less-skilled workforce.”

In any case, it will be a while until the regulations come into force — the bill still needs to work its way through parliamentary committees before it approaches a final vote. Kieran Delamont