Bill C-31: Proposed Restriction On Non-competition Clauses For Federally Regulated Employers

On May 6, 2026, the Government of Canada introduced Bill C-31, Budget 2025 Implementation Act, No. 2 (Bill C-31), which proposes amendments to the Canada Labour Code that would prohibit federally regulated employers from including non-competition restrictions in agreements made with their employees or trade unions.

Prohibitions on non-competition clauses

As of now, federally regulated employers can include post-employment non-competition clauses in agreements with their employees, provided those clauses meet the limitations established by applicable law.

In all provinces other than Québec, restrictive covenants in employment-related agreements are subject to the limitations established by the common law where non-competition covenants are considered covenants in restraint of trade and are generally unenforceable unless they are reasonable and necessary to protect a legitimate proprietary interest of the employer. The onus is on the employer seeking to enforce the covenant to establish its reasonableness. The reasonableness of a restrictive covenant is assessed having regard to: (a) whether the restrictions protect a proprietary interest that is entitled to protection and whether a non-solicitation covenant would suffice; (b) whether the restrictions are reasonable in their geographic and temporal scope; (c) whether the breadth of the restrictions is reasonable; and (d) whether the restrictions are in keeping with the public interest.

In Québec, Article 2089 of the Civil Code of Québec permits non-competition clauses in employment contracts, but imposes strict requirements: the clause must be in writing, expressly stipulated, limited as to the time and place in which it applies, and limited to the type of work performed by the employee. In addition, courts will only enforce a non-competition clause if it is necessary to protect the employer’s legitimate interests and does not unduly restrict the employee’s ability to earn a livelihood. Again, the burden of proving that the clause meets these requirements rests on the employer.

Although these frameworks require careful drafting, courts across the country have validated, over the years, numerous non-competition clauses imposed by federally regulated employers.

Bill C-31 would fundamentally change this framework by imposing an outright prohibition on non-competition clauses for most federally regulated employees. As drafted, Bill C-31 would prohibit employers from entering into any agreement with employees or trade unions that contains a non-competition clause or other employment-related restriction, including inducing an employee to agree to one, and from retaliating against an employee who refuses to agree to such non-competition or other employment-related restriction.

The prohibition is intentionally broad in scope, encompassing both direct and indirect measures aimed at limiting an employee’s ability to pursue other employment or business opportunities following the termination of employment. Under the proposed amendments, a non-competition clause is defined as “a term or condition of employment, or a clause in an agreement, that prohibits an 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.”‍

Notably, the meaning of “other employment-related restriction” is not identified in the current draft of Bill C-31, as “other employment-related restriction” is simply 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.” Accordingly, the precise scope of prohibited employment-related restrictions will be clarified through future regulatory guidance. The employer would bear the burden of proving that a clause does not constitute a prohibited employment-related restriction.

Bill C-31 does not only propose to prohibit future non-competition or other employment-related restrictions, but also proposes to render any existing non-competition clauses or other employment-related restrictions void.

Contemplated exceptions

The prohibition on non-competition clauses and other employment-related restrictions is not intended to be all-encompassing, and limited exceptions are contemplated in Bill C-31 where the prohibition would not apply. Specifically, the prohibition would not apply:

• in limited transactional circumstances where a person sells their business and becomes an employee of the new employer;
• to employees who hold the position or perform the functions of chief executive officer; or
• to employees who hold other executive positions, such as president, chief operating officer, chief financial officer, chief human resources officer, chief information officer, chief technology officer or chief legal officer, provided that those persons report directly to the CEO and are the only employee who holds their position.

Future regulations may specify additional positions to which the prohibitions would not apply.

Transition period and employer considerations

Bill C-31 is currently at Second Reading in the House of Commons and has not yet been enacted; its proposed measures remain subject to changes during the legislative process. If adopted, the amendments would come into force on a day to be fixed by proclamation.

As noted above, existing non-competition clauses and employment-related restrictions will not be preserved; Bill C-31 provides a one-year transition period from the coming-into-force date before such agreements would be rendered void (or null, in Québec), including for provincially regulated employers who become federally regulated during that period.

Conclusion

Should this legislation come into force, the Government of Canada will become the second Canadian jurisdiction to legislate a prohibition on inclusion of non-competition clauses in employment agreements; Ontario was the first Canadian jurisdiction to legislate such a restriction in 2021. With Ontario’s existing prohibition and the proposed federal amendments, employers across Canada should be aware of an emerging legislative trend toward restricting non-competition clauses, which may lead to similar prohibitions in other provinces.

In anticipation of Bill C-31’s enactment and any future regulatory developments, federally regulated employers should consider reviewing any existing restrictive clauses in their employment agreements and other relevant agreements to assess whether they would fall within an identified exception, and should connect with a member of Dentons Employment and Labour team to discuss alternatives that may be available, such as carefully drafted non-solicitation provisions, to protect the company’s interests.