Proposed Canada Labour Code amendments prohibit Federal employers from imposing non-compete clauses

Potential amendments to the Canada Labour Code, if passed, will impact Federally regulated employers by prohibiting non-compete clauses and other employment-related restrictions. Employers operating in these sectors should take note of these proposed changes and consider their implications for existing and future employment agreements.

Background

Bill C-31, titled A second Act to implement certain provisions of the budget tabled in Parliament on November 4, 2025, was introduced and completed its first reading at the House of Commons on May 6, 2026. If passed, the Bill will make significant changes to the Canada Labour Code pertaining to non-compete clauses and other employment-related restrictions.

The Bill must still complete a second reading, committee stage, report stage and third reading at the House of Commons. It must then complete a first reading, second reading and third reading at the Senate to ultimately receive Royal Assent before becoming law. As a budget implementation bill, Bill C-31 may proceed through the legislative process more quickly than standalone legislation.

Definitions

The Bill creates two definitions under the Canada Labour Code. The first is a “non-compete clause,” which it defines as a term of employment (including a condition of employment or clause in an agreement) that prohibits an employee from engaging in any activity that is in competition with the employer’s Federal work, undertaking or business after the employee is no longer employed. Notably, this definition focuses on post-employment restrictions and does not capture restrictions that apply only during the term of employment.

Additionally, the Bill defines “other employment-related restriction” as a term of employment that is not a non-compete clause and is part of a class specified in the regulations. The Bill outlines that for the purpose of this definition, the Governor in Council can make regulations specifying classes of terms, conditions of employment or classes of clauses in agreements that in their opinion “unreasonably restrict the ability of employees to engage in any business, work, occupation or trade, profession, project or other activity.” If the Bill is passed, these regulations will be posted at a later date.

Non-compete clauses

As a general rule, the Bill would prohibit non-compete clauses in most scenarios. Specifically, it states that an employer cannot agree to, impose on or induce an employee to agree to a non-compete clause or other employment-related restriction. An employer is also prohibited from agreeing to a non-compete clause or other employment-related restriction with a trade union. If the employer contravenes these prohibitions, the Bill deems that non-compete clauses or other employment-related restrictions are void. This means the non-compete clause or other employment-related restriction would be unenforceable and the employee would not be bound by it.

However, the Bill does provide exemptions from these rules for:

• A person who leases or transfers their work, undertaking or business to an employer, but then immediately becomes an employee of the employer, if the person agrees to a non-compete clause or other employment-related restriction as part of this lease or transfer. However, the work, undertaking or business must be Federal or it must become Federal due to the lease or transfer.
• A person who holds the position of or performs the functions of Chief Executive Officer.
• An employee who reports directly to the person holding the position or performing the functions of the Chief Executive Officer and is the only employee who holds the position or performs the functions of President, Chief Operating Officer, Chief Financial Officer, Chief Human Resources Officer, Chief Information Officer, Chief Technology Officer or Chief Legal Officer. This exemption does not apply if the employee is a “manager” within the meaning of the Canada Labour Code, which generally refers to persons who exercise management functions but are not senior executives.
• An employee who reports directly to the person holding the position or performing the functions of Chief Executive Officer and holds or performs the functions of a position that is specified in the regulations.

The Bill also addresses retaliation, stipulating that an employer cannot dismiss, suspend, lay off, demote or discipline an employee because the employee refused to agree or comply with a non-compete clause or other employment-related restriction. An employer also cannot consider an employee’s refusal to agree to a non-compete clause or other employment-related restriction in making a decision to promote or train that employee. These anti-retaliation provisions do not apply to positions that are described in the exemptions listed above.

Under the Bill, the employer will bear the burden of proof if it alleges that a term of employment is not a non-compete clause or other employment-related restriction. Likewise, if the employer alleges a non-compete clause or other employment-related restriction is enforceable, it will also have the onus to establish this.

Similar rules have been codified in Ontario under the Employment Standards Act, 2000. The legislation prohibits an employer from entering into a non-compete agreement with an employee. In Ontario, there are only two exceptions to this rule:

• If a sale of business occurs and, as part of the sale, an agreement is entered into that prohibits the seller from engaging in competition with the purchaser’s business and immediately following the sale the seller becomes an employee of the purchaser.
• An employee who is an executive. An executive is defined as any person who holds the office of Chief Executive Officer, President, Chief Administrative Officer, Chief Operating Officer, Chief Financial Officer, Chief Information Officer, Chief Legal Officer, Chief Human Resources Officer, Chief Corporate Development Officer or any other chief executive position.

Practically speaking, the employer would have to establish that the non-compete agreement falls into one of the two exceptions for it to remain enforceable.

Key takeaways

If the Bill passes, the ability of Federally regulated employers to rely on non-compete clauses would be significantly curtailed. The Bill includes a transitional provision stating that the provision garnering all non-compete clauses or other employment-related restrictions void will not come into force until one year after the provision preventing an employer from agreeing to non-compete clauses or other employment-related restrictions comes into force. Therefore, there is a one-year grandfathering for existing non-compete clauses and other employment-related restrictions.

As the Bill could advance quickly, employers should begin examining alternative means of protecting their legitimate business interests in the meantime. Employers can prepare for these proposed amendments by strengthening or including new confidentiality and intellectual property provisions in their employment . Employers should not only have new employees sign these new agreements, but also have current employees agree to the new provisions. Current employees should be offered consideration in return for signing the new agreement to ensure the new provisions in the agreement are enforceable.

MLT Aikins will continue monitoring the Bill and publish any updates. If you have questions about how these proposed Canada Labour Code amendments may affect your workplace, our Labour and Employment team is here to help. We can assist with amending employment agreements, compliance planning, and assessing potential risks. Contact us to ensure your organization is prepared if these changes come into force.

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