Ontario Superior Court Confirms that Prohibition on Non-Compete Agreements Does Not Apply to Agreements Signed Prior to October 25, 2021

As discussed in our earlier web update, one of the changes introduced by Working for Workers’ Act, 2021 (“Bill 27”) was a prohibition on non-compete agreements other than for executives or in the case of a sale of a business. The recent decision in Parekh et al v Schecter et al confirm that non-compete agreements entered into prior to Bill 27 may still be enforced.

Background

In Parekh, the plaintiffs purchased a dental practice from the defendants, one of whom, Dr. Ira Schecter, continued to work in the clinic for four (4) years as a term of the sale. Dr. Schecter also signed a non-compete agreement restricting him from practicing dentistry within a 5-kilometre radius of the plaintiffs’ practice for a specified period of time, as well as non-solicitation and confidentiality agreements.

Shortly after his resignation, Dr. Schecter established a new practice within a 5-km radius of the plaintiffs’ practice. The plaintiffs sought an interlocutory injunction to enforce the non-compete agreement. One argument made by counsel for Dr. Schecter was that the non-compete was unenforceable by virtue of Bill 27.

Justice Sharma of the Ontario Superior Court heard the motion. He held that Bill 27 did not impact the enforceability of the non-compete clause in issue, noting that “new legislation that affects substantive rights will be presumed to have only prospective effect unless it is possible to discern a clear legislative intent that it is to apply retrospectively”. The express legislative intent to make the ESA amendments applicable as of October 25, 2021 necessarily led to the conclusion that the prohibition on non-compete agreements does not apply to agreements entered into prior to that date.

Ultimately Justice Sharma found that it was appropriate to grant an injunction on the basis of the applicable common law principles, noting that Dr. Schecter’s goodwill was central to the business that the plaintiffs had purchased and that that the non-compete covenant therefore flowed from the bargain struck with respect to the sale of the business. Justice Sharma issued an order that prohibited Dr. Schecter from practicing dentistry within a 5-kilometer radius of his former practice until the end of the non-compete agreement. Dr. Schecter was also prohibited from soliciting former patients to move to his new practice.

Takeaways for Employers

Parekh is a welcome decision for employers that clarifies the status of existing non-compete agreements after the passage of Bill 27. However, employers are reminded that even prior to the passage of Bill 27, non-compete agreements were considered by the courts to be restraints of trade and therefore presumptively unenforceable.

For advice specific to your situation, consider contacting your regular lawyer at Rae Christen Jeffries LLP.