Ontario Superior Court of Justice confirms that Bill 27 does not prohibit non-compete agreements signed ‎prior to October 25, 2021‎

Ontario’s employers may take comfort in the recent decision of the Ontario Superior Court of Justice in Parekh et al v. Schecter et al, 2022 ONSC 302, where Justice Mohan D. Sharma confirmed that the Ontario Working for Workers Act (also known as “Bill 27”) does not interfere with the enforceability of non-compete agreements entered into prior to October 25, 2021.

As discussed in a previous alert, the Ontario Government introduced Bill 27 on October 25, 2021. Bill 27 was enacted into law on December 2, 2021. Among other things, Bill 27 prohibits non-compete agreements, except in narrow circumstances involving executives or in a sale of business context. Although Bill 27 deems the prohibition against non-compete agreements to come into force on October 25, 2021, observers have been waiting to see whether the legislative prohibition against non-compete agreements might impact a court’s analysis of the enforceability of non-compete agreements signed prior to October 25, 2021.

In Parekh et al v. Schecter et al., the plaintiffs purchased a dental practice in 2020. As a condition of the sale, the seller entered into a restrictive covenant agreement dated January 20, 2020, that included a non-compete provision prohibiting the seller from practising dentistry within a five km radius of his former clinic until October 27, 2023. However, shortly after the sale, the seller began working at a different dental practice within 5km of his former clinic, contrary to the terms and conditions of the non-compete provision in his restrictive covenant agreement.

The plaintiffs brought a motion against the seller (and others) for an injunction to enforce the restrictive covenant agreement, including the non-compete provision. Although the restrictive covenant agreement was entered into prior to October 25, 2021, and the clear language in Bill 27 deems the prohibition against non-compete agreements to come into force on October 25, 2021, the seller argued that Bill 27 should be applied retroactively and the impugned non-compete should not be enforceable.

Justice Sharma disagreed with the seller and granted an interlocutory injunction enforcing the non-compete provision. Justice Sharma observed that the legislative intent of Bill 27 was to have the prohibition on non-compete agreements come into force on October 25, 2021, and confirmed that the statutory prohibition against non-compete agreements did not apply to non-compete agreements entered into before October 25, 2021. Most importantly, Justice Sharma then proceeded to analyze the enforceability of the non-compete provision and the restrictive covenant agreement in accordance with the common law framework as it existed prior to the introduction of Bill 27.