Are non-compete agreements enforceable in Canada?

Search results on this question are dominated by American commentary, and American law is a poor guide here. The Canadian framework starts from the position that a covenant restraining trade is presumptively unenforceable, and then asks whether this particular one is reasonable between the parties and in the public interest.

Why the sale-of-business context changes the answer

When a seller gives a non-compete, they have been paid for the goodwill they are promising not to rebuild. The parties are commercial, they have advisors, and the bargaining is far closer to equal than in an employment relationship. Canadian courts have long recognised that distinction, and they scrutinise sale covenants less severely than employment ones for exactly that reason.

What makes a sale covenant reasonable

• Duration tied to how long the purchased goodwill realistically takes to transfer
• Geography matching where the business actually operates, not an aspirational footprint
• Activity scope limited to what the business genuinely does
• Unambiguous drafting — a Canadian court will generally not rewrite an overbroad covenant to rescue it
• Real consideration, which in a sale is the purchase price itself

The employment side is different again

Employee non-competes face a much harder test, and some Canadian jurisdictions have legislated restrictions on them while carving out sale-of-business situations and certain senior roles. A buyer who assumes they can simply impose a non-compete on inherited staff after closing is likely to be disappointed — non-solicitation covenants are usually the more realistic tool there.

The practical drafting risk

The most common failure is overreach. A covenant drafted to cover the whole country for ten years, when the business serves one metropolitan area, risks being struck down entirely — leaving the buyer with no protection at all rather than the narrower protection they could have had. Asking for less, precisely, is usually worth more.