Over the last few years, there’s been a lot of talk that non-compete clauses are dead. Not quite.
While Ontario has prohibited most non-compete clauses in employment agreements, courts continue to recognize that non-competes can serve a legitimate purpose in certain circumstances—particularly when someone buys a business and pays substantial value for its goodwill.
For dentists, that’s an important distinction. Because when you sell your dental practice, a large portion of what the purchaser is paying for isn’t the chairs, x-ray units, or sterilization equipment. It’s the goodwill: the patient base, reputation, referral sources, and expectation that patients will continue attending the practice after the transaction closes.
If a selling dentist could simply open another office down the street and take patients back, much of that goodwill would disappear overnight. So, are non-compete clauses still legal? The answer is: it depends on the context.
Employment Standards Act, 2000
In 2021, Ontario amended the Employment Standards Act, 2000 (the “ESA”) to prohibit non-compete clauses in employment agreements. Section 67.2(1) provides:
No employer shall enter into an employment contract or other agreement with an employee that is, or that includes, a non-compete agreement.
Accordingly, if you’re employing hygienists, assistants, receptionists or other team members, a non-compete clause will generally be void.
This prohibition applies not only when hiring, but also during employment and after termination—including settlement agreements. The legislation is retroactive to October 25, 2021. That said, even before the ESA amendments, courts had long been skeptical of non-compete clauses in employment relationships. Unless exceptional circumstances existed, judges generally refused to enforce them.
Does the ESA Apply to Dentists?
Not usually. Dentists are often carrying on business through professional corporations or associating as independent contractors compensated by a percentage of collections. Accordingly, many associate relationships fall outside the ESA.
But that doesn’t automatically make a non-compete enforceable. It simply means that the validity of the clause must be determined under the common law. There is also an important statutory exception.
Section 67.2(3) of the ESA provides that where a seller and purchaser of a business agree to a non-compete and the seller later becomes an employee of the purchaser, the general prohibition does not apply. This exception recognizes that the sale of a business is fundamentally different from ordinary employment. And that distinction has repeatedly been recognized by Canadian courts.
The Supreme Court of Canada: Sale of a Business Is Different
The leading authority is the Supreme Court of Canada’s decision in Payette v. Guay inc., 2013 SCC 45.
There, the sellers sold a crane rental business for approximately $26 million and agreed to restrictive covenants. One of the vendors later argued that the covenants should be treated like employment clauses and interpreted strictly.
The Supreme Court disagreed.
Justice Wagner held that restrictive covenants arising from the sale of a business are fundamentally different from those found in employment agreements. Parties selling businesses generally bargain from relatively equal positions, are represented by legal and accounting professionals, and enjoy greater freedom of contract.
As a result, the Court explained that the criteria for determining reasonableness are “less demanding” and that courts are considerably more willing to uphold restrictive covenants negotiated in a commercial context.
Most importantly, the Court recognized that purchasers are entitled to meaningful protection of the goodwill they have purchased.
That principle is particularly relevant to dental practices.
Ontario Courts Continue to Follow Payette
More than a decade later, the Ontario Court of Appeal reaffirmed those principles in Dr. C. Sims Dentistry Professional Corporation v. Cooke, 2024 ONCA 388. Dr. Sims purchased Dr. Cooke’s Hamilton dental practice for approximately $1.1 million. As part of the transaction, Dr. Cooke agreed that following the end of his association with the practice, he would not practise dentistry within a 15-kilometre radius for five years. Approximately three years later, Dr. Cooke intended to work at another office located only 3.3 kilometres away and argued that the restriction was unreasonable.
The Court of Appeal disagreed.
It upheld the five-year, 15-kilometre non-compete.
Significantly, the Court noted that patients often attend their dentist only once or twice a year and that it can take many years for trust and rapport to develop between patients and a new practitioner. Protecting the purchaser’s goodwill therefore justified a lengthy restrictive period. The Court also emphasized that both parties were sophisticated, legally represented, and had equal bargaining power.
In other words, courts generally expect parties to live with the bargains they freely negotiate. For dentists buying or selling a practice, the message from Sims is unmistakable: Non-compete clauses are alive and well.
But Courts Will Not Rescue Bad Drafting
Even in the sale-of-business context, non-compete clauses must still be carefully drafted. Courts will not rewrite sloppy language to make an unreasonable clause enforceable.
That point was emphasized in Crawford Packaging Inc. v. Dorata, 2020 ONSC 3555, where the Court reiterated that restrictive covenants must be precise and go no further than reasonably necessary to protect legitimate business interests.
Similarly, in Craig v. CEO Global Network Inc., 2019 ONSC 3589, the Court observed that restrictive covenants arising in employment relationships attract much greater scrutiny because employees are generally in a weaker bargaining position.
Again, context matters.
The Boaden Case Shows What Can Go Wrong
In Boaden Catering Limited v. Earl Haig Community Day Care, 2024 ONSC 5349, the employer attempted to enforce a non-compete clause against a former employee.
The clause prohibited competition within a 100-mile radius of “any unit or regional office of the Company.” Unfortunately for the employer, there were no “unit or regional offices.”
The Court found the language ambiguous.
Worse yet, a 100-mile radius effectively stretched from London to Peterborough and from Owen Sound into upstate New York—even though the employer operated primarily within the GTA. The restriction was wildly overbroad and therefore unenforceable. To make matters worse, the employee had left the catering industry and joined a daycare operator that happened to provide meals to children.
The Court concluded that merely because both organizations prepared food did not mean they were competitors. The employer lost.
The lesson? Downloading a restrictive covenant from the internet and hoping for the best is rarely a good strategy.
Context Counts
Courts are far less likely to enforce a non-compete clause in an associate agreement between a principal dentist and a new graduate associate. The relationship closely resembles employment.
A new dentist should generally be free to develop skills, knowledge and experience without being prevented from earning a livelihood.
Indeed, in most situations, a carefully drafted non-solicitation clause prohibiting the poaching of patients and team members will provide adequate protection.
The picture changes dramatically when a dentist sells a practice. In that situation, the seller receives substantial value for the goodwill of the business. The purchaser is entitled to protect that investment.
As the Supreme Court of Canada recognized in Payette, and as the Ontario Court of Appeal recently confirmed in Dr. C. Sims Dentistry Professional Corporation v. Cooke, courts are much more willing to enforce non-compete clauses arising from the sale of a business.
Bottom Line
Despite rumours of their demise, non-compete clauses are not dead. For employees, they are generally prohibited. For associate dentists, they are often difficult to justify. But for the sale of a dental practice, properly drafted non-compete clauses remain an important and enforceable tool to protect the goodwill that a purchaser has paid for. Just don’t copy one off the internet. Because if recent cases teach us anything, it’s this: Courts won’t save a bad non-compete—but they will often enforce a good one.
