On May 6, 2026, the Canadian federal government introduced Bill C-31, Budget 2025 Implementation Act, No. 2, (Bill C-31), which proposes significant amendments to the Canada Labour Code (Code) that would substantially restrict the use of non-compete clauses in federally regulated workplaces.
If passed, the proposed amendments would prohibit the use of non-compete covenants in employment agreements, representing a material shift in the treatment of post-employment restrictive covenants at the federal level and aligning the Code more closely with Ontario’s existing legislative framework.
A Comprehensive Prohibition on Non-Compete Clauses
Bill C-31 would introduce a broad prohibition against non-compete clauses and certain other employment related restrictions. In particular, the proposed amendments would prohibit a federally regulated employer from:
- Entering into an agreement that includes a non-compete clause with an employee or trade union
- Imposing such a clause on an employee, including by requiring or inducing the employee to agree to it
The prohibition is deliberately expansive and captures both direct and indirect efforts to restrict employee mobility post-employment.
Scope of Restricted Clauses
A “non-compete clause” is defined broadly to mean 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.
Bill C-31 also captures “other employment-related restrictions,” which is defined to mean 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. This category is therefore intended to be further developed through future regulatory guidance and signals a broader legislative intent to extend scrutiny beyond traditional non-compete clauses to other forms of post-employment restraint.
Targeted Exceptions
Despite the breadth of the prohibition, Bill C-31 contemplates limited exceptions in defined circumstances:
- Sale of Business Transactions: Non-compete clauses would remain permissible where as part of a sale, lease, merger or transfer of a business or part of a business (a) the purchaser and seller enter into an agreement that contains a non-compete or other employment-related restriction, and (b) the seller becomes an employee of the purchaser immediately following the sale, lease, merger or transfer of the business.
- Senior Executive Roles: The proposed regime preserves the use of non-compete clauses or other employment-related restrictions for certain senior leadership positions, including the chief executive officer, as well as other prescribed C-suite roles.
- Specified Senior Employees: The exception is also currently drafted to extend to certain employees who report directly to the chief executive officer, together with any additional classes of employees that may be designated by regulation.
Enforceability and Transition
Non-compliant non-compete clauses and related restrictions would be void.
Bill C-31 contemplates transitional treatment for existing agreements, though the scope of any transition period will depend on the final legislation.
Anti-Reprisal Protections
Employers would be prohibited from taking adverse action against employees who refuse to agree to, or comply with, a prohibited non-compete clause or related restriction.
Alignment With Ontario’s Non-Compete Prohibition
Bill C-31 closely mirrors Ontario’s statutory ban on non-compete agreements under Bill 27, Working for Workers’ Act, 2021, which amended the Employment Standards Act, 2000. Ontario’s regime similarly:
- Prohibits employers from entering into non-compete agreements with employees
- Provides narrowly defined exceptions in the context of a sale/lease of a business and to certain C-suite executive roles
Conclusion
The proposed federal amendments reflect a broader legislative trend toward restricting non-compete clauses in the employment context across Canada.
If enacted, Bill C-31 will require federally regulated employers to carefully review and, where necessary, revise their employment agreements and onboarding practices, particularly with respect to the use of non-compete clauses and other restrictive covenants. It remains to be seen whether Bill C-31 will undergo further amendments as it proceeds through subsequent readings. We will continue to provide any material updates regarding the status of Bill C-31 in future bulletins.
For further information, please contact any member of our Employment & Labour group.
