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Working for Workers Act does not void non-compete agreements entered into prior to 25 October 2021

Ontario

,

Canada

Ontario Superior Court Confirms Working for Workers Act Does Not Void Non-compete Agreements Entered Into Prior to 25 October 2021 In Parekh et al v. Schecter et al, 2022 ONSC 302, at issue were recent amendments to the Employment Standards Act (“ESA”)which have prohibited employers from entering into employment contracts with employees that include non-compete agreements. The prohibition does not apply to sale of business agreements or if the employee is an executive.The ESA provides that the prohibition against non-compete agreements comes into force 25 October 2021, however, it is silent on whether agreements entered into before that date are null and void.In this case, the Ontario Superior Court gives us an answer. In this case, the plaintiffs purchased a dentistry practice from one of the defendants in 2020. That defendant’s father, another defendant in the matter, was the original owner of the practice and continued to treat his patients there as an associate. One of the restrictive covenants in his associate agreement, signed upon the sale of the business to the plaintiffs in 2020, was a non-compete agreement detailing that he must not practice dentistry within a 5km radius of the Practice until 2023. The father resigned from the practice in October 2021 and began practicing dentistry within the radius restricted by the non-compete agreement, claiming the agreement was void by virtue of the amendments to the Act.At trial, the Court highlighted that the interpretive guidelines for remedial legislation point to the intention of the legislature to have the amendments take effect on a specific date, on a moving forward basis. Therefore, it made an order to enforce the non-compete agreement until 2023 as originally agreed to.The respondent township told the applicants they could not cultivate cannabis on the site because it was zoned “industrial”. The township said that the current zoning did not allow for agricultural use and that they were not prepared to change the zoning for the site to allow cannabis production. Additionally, after commencing enforcement action against the applicants relating to the township’s zoning by-law, the township also passed an interim control by-law that prohibited cannabis production while the township studied the issue. The interim cannabis by-law included an exception for personal-use cultivation limited to four plants per residential household but did not include any exceptions for medicinal cannabis production.The applicants’ underlying application involved a constitutional challenge of the zoning by-law and the interim control by-law.In the interim, the applicants sought an injunction restraining the township from enforcing the two by-laws. The applicants wished to continue growing and processing cannabis at the site pending the final disposition of their application.The Court applied the test for interim injunctions set out in RJR-McDonald Inc. v. Canada (Attorney General), 1994 CanLII 117 (SCC), [1994] 1 S.C.R. 311.The township conceded that the applicants had met the first branch of the RJR-McDonald test, namely, that there was a serious issue to be tried. On the second branch, the Court found that if the injunction was not granted, the applicants would suffer irreparable harm because they would not be able to obtain the amount of daily cannabis they had been prescribed as it would be cost-prohibitive to rely on the retail cannabis market. Additionally, the applicants could not relocate their site and would suffer significant financial losses if forced to temporarily move or shutter their site. This would include the plants themselves which could not be transported during their growing cycle. Moreover, even if they were ultimately successful on the application, the applicants could not claim damages against the township as a public body acting in good faith.With respect to the balance of convenience branch of the test, the Court found that the current zoning of the site favored the applicants. The site was zoned industrial, far away from neighbors and schools, and minutes from a local police station. The site abutted a local waste transfer center. The Court also found that there was no concrete harm to the township that would flow from granting the injunction. There were no allegations of criminal activity. The OPP was involved in the inspection process and had not laid any charges. There was no evidence that there had been complaints from neighbors or others.Consequently, the Court granted the interim injunction and awarded the applicants their costs on a partial indemnity basis.

April 14, 2022
Parekh et al v. Schecter et al, 2022 ONSC 302 (CanLII)