Does a seller’s non-compete still apply if the buyer later fires them?

A seller sells the business, stays on as the buyer’s employee, and is dismissed. The buyer then points to the promise not to compete. To work out whether it still binds the seller, check which document contains it, when its period starts and which province’s law applies. This page covers Ontario’s Employment Standards Act, 2000 and article 2095 of the Civil Code of Québec, and says where the sources we opened stop. For the wider rules, see whether non-competes are enforceable in Canada.

Ontario: what the Act says

Section 67.2(1) bars an employer from entering into a non-compete agreement with an employee, subject to the exceptions in s.67.2(3) and (4). Section 67.2(3) excepts a sale covenant if there is a sale of a business or part of one, the purchaser and seller enter into an agreement as part of the sale that prohibits the seller from competing with the purchaser’s business after the sale, and, immediately following the sale, the seller becomes an employee of the purchaser. The Ontario government’s guide to the Act describes the exception with an added condition, that the business sold be operated as a sole proprietorship or a partnership; the text of s.67.2(3) does not contain it, so rely on the section itself. Those conditions look at the sale and the seller’s move into employment. The text we read does not address what a later dismissal does to the covenant. That question is for an Ontario lawyer.

Québec: article 2095

Article 2095 says an employer may not avail itself of a stipulation of non-competition if it has resiliated the contract without a serious reason, or if it has itself given the employee such a reason for resiliating. The article concerns an employment stipulation. Whether a covenant written into the sale agreement counts as one is a question for a Québec lawyer; we found no readable source that answers it.

What one Ontario case shows

In Martin v. ConCreate (2013 ONCA 72), the Court of Appeal for Ontario recorded that the buyers terminated the seller’s employment as President less than six months after closing, and that the seller started a company eight days later. The buyers alleged cause and the seller disputed it. The Court identified the covenants’ duration as the central issue, so the decision does not tell you how a dismissal affects a covenant. It does note, citing Elsley, that the law distinguishes a covenant given on a sale from one between employer and employee.

Questions to put to your lawyer

• Which document holds the covenant: the sale agreement, the employment contract, or both?
• When does its period start: closing, or the end of your employment?
• Does either document say anything about dismissal, with or without cause?
• Which province’s law governs the covenant and the employment?

Also see what stays with you after you sell.