You’ve likely heard of non-compete agreements or contract clauses. They are used by companies in many situations, with executive professionals in particular. But they have been used for all types of employees.
In your career, you may be asked by your employer to sign a non-compete agreement. Or maybe you already have signed one. But what exactly are they? How do they affect you and are they enforceable?
We asked our legal recruiters to explain non-compete agreements and what you need to know about them.
What is a non-compete clause?
A non-compete clause is a section of an employment contract preventing an employee from working for a competitor or starting a business that would be in competition with their employer. This cause can come into effect while you are working for a company and for a defined period after you exit the organization.
These clauses are most common at the executive level and for those who work in technical roles. However, they have been used at all levels of employment across all industries.
Why are non-compete agreements potentially harmful?
A non-compete can compromise an employee’s ability to seek out work if they want to leave an organization. It can also be used to persuade an employee to not go work for a competitor for fear of legal repercussions. Because of these potential issues, there are steps being taken in the US and Canada to restrict the use of non-compete clauses.
FTC proposes rule to ban noncompete clauses in US
At the beginning of the year, the Federal Trade Commission in the US proposed a new rule to ban employers from using non-compete clauses on their workers. Why was this rule change proposed?
“Research shows that employers’ use of noncompetes to restrict workers’ mobility significantly suppresses workers’ wages—even for those not subject to noncompetes, or subject to noncompetes that are unenforceable under state law,” said Elizabeth Wilkins, Director of the Office of Policy Planning.
“The proposed rule would ensure that employers can’t exploit their outsized bargaining power to limit workers’ opportunities and stifle competition,” she adds.
In the US alone, non-compete clauses affect about 18% of workers, which is 30 million people.
What about the use of non-compete clauses in Canada?
While non-compete clauses are still used in Canada, Ontario recently became the first province to ban the use. This came into effect on December 2, 2021. This means employers can no longer force you to sign a non-compete as part of your employment agreement.
4 Facts you should know about non-compete agreements in Ontario
As an employee, here is what you need to know:
- Most non-compete clauses challenged in court have been rendered unenforceable
- Many employees are unaware non-compete clauses are no longer enforceable
- There are two exceptions. The first is the sale of a business. The second is for people holding executive and C-level positions. Employers can enter non-compete agreements with executives
- Non-compete agreements entered prior to October 25, 2021, can be valid
Not sure about your rights? Have a non-compete clause in your employment contract? Speak with an employment lawyer to get advice and understand your legal rights.
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