Can a non-compete stop you working for a competitor after you sell your business?

Whether you can take a job with a competitor after selling depends on what your clause prohibits. This page is about the activity the clause covers, not the distance or the length of time. It cannot say whether a court would enforce a particular clause. That is a legal question for a lawyer in your province who has read your agreement.

How wide the wording can go

Ontario’s Employment Standards Act, 2000 s.67.2(3) sets out an exception to the non-compete ban. It applies where there is a sale of a business or part of a business, the purchaser and seller agree as part of the sale to a term that prohibits the seller from engaging in any business, work, occupation, profession, project or other activity that is in competition with the purchaser’s business after the sale, and the seller becomes the purchaser’s employee immediately after the sale. The Act says “sale” includes a lease. That wording shows how much a clause can name. It does not say that every clause of that reach is enforceable, and it is an Ontario employment rule only.

Read the verbs and who is bound

Compare the roles your clause lists. The Court of Appeal for Ontario, in MEDIchair, a franchise case rather than a sale, reproduced a franchise covenant that barred carrying on, engaging in, being concerned with, being interested in, advising, lending money to or guaranteeing the debts of a similar business. Ask whether yours reaches employment, consulting, ownership, investing, lending or board roles, and whether it binds you personally or only the selling company.

Which business counts as a competitor

Look at how the clause defines the business sold. In Martin v. ConCreate, a case about covenants signed with the sale of businesses, the Court of Appeal for Ontario said that if a covenant is ambiguous in what it prohibits as to activity, time or geography, it is not possible to show it is reasonable. It found the covenants there were not ambiguous, but held the general non-competition and non-solicitation covenants unenforceable because their term had no fixed outside limit. In MEDIchair, the court agreed with the lower court that the word “similar” was not ambiguous in the context of that franchisor’s business. It still allowed the former franchisee’s appeal, because the franchisor had no legitimate or proprietary interest to protect within the covenant’s territory. Each result turned on its own facts. Citing the Supreme Court of Canada’s decision in Payette, the court also said reasonableness asks whether the clause is limited, as to its term, territory and activities, to whatever is necessary to protect the legitimate interests of the party in whose favour it was granted. So ask which products and customers the buyer actually bought, and whether the definition stays within them. See also radius restrictions and whether non-competes are enforceable in Canada.