On May 6, 2026, the Canadian federal government introduced The Budget 2025 Implementation Act, No. 2 [Bill C-31]. While courts have presumptively treated non-compete clauses as unenforceable, Bill C-31 would amend the Canada Labour Code [CLC] to expressly prohibit these clauses in many circumstances (as we covered in our earlier blog). This change would generally align the federal regimewith Ontario’s Employment Standards Act, 2000, which prohibited non-compete clauses for provincially regulated employers in 2021.

PROPOSED CHANGES TO THE CLC

If passed, Bill C-31 would prohibit federally regulated employers from imposing, agreeing to, or inducing an employee to agree to a non-compete clause. Non-compete clauses are defined as any term that prohibits an employee from engaging in business, work, or an activity that is in competition with their employer’s work after their employment ends. This prohibition would also apply to “other employment-related restrictions”—terms addressed by future regulations, even if the technical definition of “non-compete clause” does not apply.

Bill C-31 would also introduce anti-reprisal protections for employees by prohibiting employers from dismissing, suspending, laying off, demoting, or disciplining an employee who refused to agree or comply with a non-compete clause. Employers are also prohibited from considering an employee’s refusal to agree to a non-compete clause when making decisions regarding promotions or training.

EXEMPTIONS

Bill C-31 carves out limited exemptions, as non-compete clauses remain permissible for the following types of employees:

• in the context of a sale of business, a person who became an employee immediately after selling their business to the employer;
• a chief executive officer;
• any of the following positions if they are the only person holding that position, directly report to the chief executive officer, and are considered a manager under the CLC: the president, chief operating officer, chief financial officer, chief human resources officer, chief information officer, chief technology officer, or chief legal officer; and
• a position that is specified in the regulations.

TIMELINE

Bill C-31 is at the Second Reading stage and does not currently apply to employers. If it is passed, applicable non-compete clauses would be void on the first anniversary after the prohibition comes into force. Employers would have a one-year transition period to review and address non-compete clauses that are prohibited by the CLC.

TAKEAWAYS FOR EMPLOYERS

Bill C-31 is still proposed legislation and is subject to change through the legislative process until it receives Royal Assent. We will continue to monitor the progression of Bill C-31 and provide relevant updates as further details emerge. In the interim, federally regulated employers should proactively prepare by implementing the following strategies:

• Plan Ahead: Employers should monitor the progress of Bill C-31 and whether the proposed prohibition on non-compete clauses comes into force. If Bill C-31 receives Royal Assent, employers should keep track of key dates, including the one-year anniversary that marks the end of the transition period, to ensure compliance with upcoming requirements.
• Review and Update Agreements: Employers should review their employment agreements and identify non-compete clauses that may be prohibited if Bill C-31 is enacted.
• Consider Alternatives: Unlike non-compete clauses, clauses regarding confidentiality, intellectual property, and non-solicitation are not expressly prohibited by Bill C-31. Employers should consider implementing these alternatives in employment agreements to protect their business interests.

This blog is provided as an information service and summary of workplace legal issues.

This information is not intended as legal advice.