Does an employee’s non-compete still apply after the business is sold?

When a buyer keeps the seller’s staff, ask what happens to their contracts; any non-compete in them is a question to answer, not a certainty. This page covers Ontario and Québec only; check the rules where the employees work. Start by asking whether each covenant was valid to begin with, then ask what the sale changes. Seller covenants are a different subject, covered in the non-compete ban and a business sale.

Ontario: check the date first

Section 67.2(1) of the Employment Standards Act, 2000 says no employer shall enter into an employment contract or other agreement with an employee that is, or includes, a non-compete agreement. A covenant made in breach is void under section 67.2(2). The Ontario government’s guide says this took effect on October 25, 2021, and that the Act does not prohibit non-competes entered into before that date. For those older covenants, the guide says to talk to a lawyer about enforceability. Section 67.2(4) excepts employees who are executives, a term section 67.2(5) defines by a list of chief offices; section 67.2(3) excepts a seller’s covenant given in a sale where the seller becomes the purchaser’s employee immediately following the sale. Ask for each signed covenant and its date.

Ontario: what the sale does

Section 9(1) says that where an employer sells a business or a part of a business and the purchaser employs an employee of the seller, the employment is deemed not terminated or severed for the purposes of the Act. Section 9(2) says this does not apply if the purchaser hires the employee more than 13 weeks after the earlier of the employee’s last day with the seller and the day of the sale. That concerns the Act’s calculations; it is not a non-compete rule, so ask counsel whether it matters to a covenant. In a share sale, ask counsel whether the employer changes and whether anything follows from that. In an asset sale, ask whether the covenant can be assigned at all. Do not ask existing staff to sign new ones without reading what the key-staff answer covers.

Québec: the contract follows the enterprise

Article 2097 of the Civil Code of Québec says a contract of employment is not terminated by alienation of the enterprise or a change in its legal structure, and that the contract is binding on the successor of the employer. Article 2089 lets the parties stipulate a non-competition clause in writing and in express terms, limited as to time, place and type of employment to what is necessary to protect the employer’s legitimate interests. So ask whether the clause meets those conditions. Article 2089 also puts the burden of proving the stipulation valid on the employer, and article 2095 says an employer may not rely on one if it resiliated the contract without a serious reason or itself gave the employee such a reason.