Employment law regulations for non-compete and non-solicitation clauses

Employment laws regarding non-compete and non-solicitation agreements vary significantly by jurisdiction. In Ontario, new non-compete agreements have been banned for most employees since October 25, 2021, though exceptions exist for the sale of a business and for executives. For older agreements, common law and court rulings apply.

In the United States, there is no federal ban on non-compete clauses following the FTC's decision to accept the vacatur of its rule in 2025. However, California maintains a strict stance where any contract restraining a lawful profession, trade, or business is considered void.

Legal distinctions between non-solicitation and non-compete clauses are critical. A ruling by the Ontario Court of Appeal in Donaldson Travel Inc. v. Murphy highlighted that clauses prohibiting an employee from “accepting business” may be unenforceable. While a non-solicitation clause prevents active pursuit of customers, a prohibition on accepting business can prevent an employee from working with customers who approach them independently, potentially crossing the line into an illegal non-compete.