Federal employers may soon face a significant shift in how they protect business interests and retain talent. On May 6, 2026, the federal government introduced Bill C-31, Budget 2025 Implementation Act, No. 2, which includes proposed amendments to the Canada Labour Code that would largely prohibit non-compete agreements in federally regulated workplaces.
The proposed amendments would apply only to federally regulated employers and employees, including industries such as banking, telecommunications, airlines, railways, shipping, and interprovincial transportation. Most provincially regulated employers would not be affected by these changes, though provincially-regulated employers in Ontario will already be familiar with the prohibition on non-competes, in effect since fall 2021
The proposed amendments, contained in Division 9 of Part 4 of the Bill, would prohibit employers from entering into, imposing, or inducing employees to agree to non-compete clauses or certain other employment-related restrictions. The legislation defines a “non-compete clause” broadly as any term restricting an employee from engaging in competing work or business activities after their employment ends.
If enacted, most non-compete clauses would be deemed void (or null in Quebec). The legislation also contemplates broader categories of “other employment-related restrictions,” which may later be identified through regulations where the government determines those restrictions unreasonably limit employee mobility.
The proposed changes reflect a broader policy trend favouring labour mobility and increased competition in the job market. In its accompanying news release, the federal government stated that banning most non-compete clauses would allow Canadians to “change jobs more easily,” reduce worker exploitation, and improve labour market competition.
The Bill does include several important exemptions. Non-compete clauses would remain permissible in connection with the sale or transfer of a business where the individual becomes an employee following the transaction. Exemptions would also apply to certain senior executive roles, including chief executive officers and some direct-report executives such as chief operating officers, chief financial officers, chief legal officers, and other prescribed senior positions.
The amendments would also introduce anti-reprisal protections. Employers could not discipline, dismiss, demote, or otherwise disadvantage employees for refusing to agree to or comply with a prohibited non-compete clause. In addition, the burden would fall on employers to prove that a challenged restriction either does not qualify as a prohibited clause or falls within an exemption.
A transitional provision is also proposed. Existing non-compete clauses would not immediately become void when the legislation comes into force. Instead, the invalidation provision would apply one year after the prohibition takes effect for agreements already in place at that time.
Although the amendments are not yet law, federally regulated employers should begin reviewing their employment agreements and restrictive covenant practices now. Employers may increasingly need to rely on carefully drafted confidentiality, non-solicitation, and intellectual property provisions to protect legitimate business interests if Bill C-31 is enacted in its current form.
Please contact a member of our Labour and Employment Group if you have any questions regarding the federal government’s proposed restrictions on non-compete agreements.
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