Federal Post
Bill C-31 Introduces Federal Ban on Non-Compete Clauses and Other Employment-Related Restrictions
Date: May 13, 2026
On May 6, 2026, Bill C-31, Budget 2-025 Implementation Act, No. 2 (Bill C-31) was introduced in the House of Commons for First Reading and is currently at Second Reading. The bill has not yet been enacted and its proposed measures remain subject to any changes that may be made to them during the legislative process.
Among other things, Bill C-31 would, if passed in its current form, amend the Canada Labour Code (Code) to add Division XI.1, which would prohibit non-compete clauses and other employment-related restrictions, except in certain limited circumstances.
If passed, this Code amendment will fundamentally reshape post‑employment restraints in federally regulated industries and workplaces.
The Prohibition
Bill C-31 amends the Code to prohibit employers from agreeing to a non-compete clause, or other employment-related restriction with an employee or a trade union, or imposing one on an employee, including by inducing the employee to agree to one.
Definitions
A non-compete clause is defined as:
…a term or condition of employment, or a clause in an agreement, that prohibits the employee from engaging in any business, work, occupation or trade, profession, project or other activity that is in competition with the employer’s federal work, undertaking or business after the employee ceases to be employed.
An other employment-related restriction is defined as:
…a term or condition of employment, or a clause in an agreement, that is not a non-compete clause and is part of a class specified in the regulations.
Scope of the Regime
The amendment establishes a comprehensive prohibition model, with the following features:
Prohibition extends beyond agreement, to imposition including by inducement
The regime extends beyond prohibiting employers from agreeing to non‑compete clauses or other employment related restrictions with employees or trade unions; it also prohibits employers from imposing such clauses and restrictions on an employee, including by inducing them to agree to them.
Voidness is the legal consequence
Prohibited noncompete clauses and other employment-related restrictions are void (or null in Quebec).
Employer bears the burden of proof
The employer bears the burden of proving that a term or condition of employment or a clause of an agreement is not a non-compete clause or other employment-related restriction, or that they are not void (or null in Quebec).
Employees are protected from reprisal
Employers are expressly prohibited from retaliating against employees who refuse to agree to a non-compete clause or other employment-related restriction.
Exemptions From the Prohibition
Non‑compete clauses and other employment-related restrictions are permitted in the following narrow, defined circumstances:
Sale of Business Exemption
A non-compete clause or other employment-related restriction is permissible in respect of a person who sells their business, or any part of it, to an employer, provided the person becomes an employee of that employer and agrees to the non-compete clause or other employment-related restriction, and the business is a federal business or becomes a federal business due to the sale.
C-Suite Executives Exemption
A non-compete clause or other employment-related restriction is permissible for a Chief Executive Officer and specified senior executives who report directly to the CEO: President, Chief Operating Officer, Chief Financial Officer, Chief Human Resources Officer, Chief Information Officer, Chief Technology Officer or Chief Legal Officer, provided the individual is a managerial employee and the only employee who holds the position or performs the position’s functions.
Definition of Employment-Related Restriction Unsettled Pending Regulatory Guidance
A notable feature of the regime is that the definition of employment-related restriction is left unsettled pending regulatory guidance. Bill C-31 provides that regulations may be made specifying, for purposes of that definition, terms or conditions of employment or clauses of agreements that “unreasonably restrict the ability of employees to engage in any business, work, occupation or trade, profession, project or activity.”
Additional Regulation-Making Powers
Bill C-31 provides that regulations may also be made:
- defining any term for purposes Division XI.1 of the Code (Non-Compete Clauses and Other Employment-Related Restrictions)
- imposing terms and conditions on the exemptions from the prohibition (i.e., the Sale of Business and CEO and Other C-Suite Executives exemptions)
- specifying, for purposes of the C-Suite Executives exemption, additional classes of employees or positions to whom the prohibition does not apply where, in the Governor in Council’s opinion, the harm to employers from not specifying them outweighs the harm to the affected employees from doing so.
Transitional Rule
The amendments include a limited grandfathering provision that provides that existing non‑compete clauses remain in force for one year following the coming‑into‑force of the prohibition. This creates a time‑limited window for employers to review and restructure contractual protections.
Coming Into Force Date
Bill C-31 provides that Division XI.1 of the Code will come into force on a day to be fixed by order of the Governor in Council.
Regulatory Monitoring
We will watch closely for the regulations that will define other employment‑related restrictions, and for any additional exemptions or restrictions prescribed by regulation, and provide details when available.
Key Takeaways for Federally-Regulated Employers
In Canada, Ontario is currently the only jurisdiction that has enacted a statutory prohibition against most employment-related non-competes. In every other jurisdiction, courts require employers to demonstrate that employment-related non-competes are reasonable in terms of duration, geography, scope, and necessary (i.e., a non-solicitation or confidentiality clause would not suffice).
Employers across the country should be mindful that with the prohibition in Ontario and the proposed federal prohibition, we may be seeing an alignment of legislative and common law trends, with similar statutory prohibitions on the horizon in other jurisdictions.
Since Bill C-31 is early in the legislative process, we cannot be certain that it will be enacted, or if changes will be made to the bill if it is enacted. Regardless, Bill C-31 is a strong indication that the federal government is moving in the direction of prohibiting most non-competes, and seriously considering taking a tougher stand than Ontario did by also prohibiting other employment-related restrictions.
Accordingly, federally-regulated employers would be prudent to take the following steps at this time:
- Conduct a comprehensive review of their employment agreements, including executive contracts, offer letters, and equity and incentive plans with restrictive covenants.
- Identify non‑compete and analogous provisions that may fall within the broader concept of other employment‑related restrictions.
- Redesign their post‑employment protection strategies, including by relying on non‑prohibited mechanisms (subject to regulatory direction), and increasing their emphasis on confidentiality, intellectual property, and contractual governance.
- Be attentive in executive structuring to ensure that C-Suite executives fit within the senior executive exemption.
- Carefully structure M&A transaction documentation to fall within the sale‑of‑business exemption.
If you have any questions about how Bill C-31 may impact your organization, please contact your Hicks Morley lawyer.
The article in this client update provides general information and should not be relied on as legal advice or opinion. This publication is copyrighted by Hicks Morley Hamilton Stewart Storie LLP and may not be photocopied or reproduced in any form, in whole or in part, without the express permission of Hicks Morley Hamilton Stewart Storie LLP. ©