Will the Canada Labour Code prohibit non-competition clauses?

In May 2026, the federal government introduced Bill C-31, the Budget Implementation Act, 2025, No. 2. Among the proposed measures is a significant reform to the Canada Labour Code that would prohibit, subject to limited exceptions, non-competition clauses and possibly certain other employment-related restrictions for employees of federally regulated employers.

This initiative, which has curiously received very little attention, forms part of a broader movement in Canada in favour of labour mobility and more competitive labour markets. Ontario's legislature in fact passed similar provisions several years ago. The proposed prohibition in the Canada Labour Code nevertheless raises particular issues in Quebec, since the Civil Code of Québec expressly recognizes the validity of non-competition clauses where they meet certain strict conditions, unlike the general situation in the other Canadian provinces, including Ontario.

Bill C-31 is not yet in force, however. The provisions relating to the proposed amendments to the Canada Labour Code are to come into force by order in council on a date that therefore remains undetermined. Several months, or even several years, could therefore pass before the provisions in question come into force.

Proposed amendments to the Canada Labour Code

Bill C-31 proposes to add a new series of provisions to the Canada Labour Code prohibiting a federally regulated employer from agreeing to a non-competition clause and possibly also other employment-related restrictions with an employee, as may be established by the government under the regulatory powers granted to it in that regard under the relevant provisions, if any, or from imposing them, including by inducing or compelling the employee to agree to them. The proposed text also provides that any such specifically prohibited restriction will be deemed null.

The bill also separately defines non-competition clauses and other employment-related restrictions, which suggests a potentially broader framework than the Ontario regime, which targets only classic non-competition covenants. The government is also reserving significant regulatory powers to specify the categories of prohibited restrictions and the positions covered. That said, the specifically contemplated restriction is, for the time being, limited to non-competition clauses properly so called.

Targeted exceptions

The bill nevertheless provides for certain exceptions. Based on the text of the relevant provisions, and subject to the additional restrictions that may possibly be established by the government under the regulatory powers mentioned above, these would include:

• certain situations involving the sale, lease or transfer of a business, where the person concerned subsequently becomes an employee of the purchaser or transferee;
• a person who holds, or performs the functions of, the chief executive officer;
• certain employees who report directly to the chief executive officer, particularly where they are the sole occupants of certain senior executive roles, such as president, chief operating officer, chief financial officer, chief human resources officer, chief information officer, chief technology officer or chief legal officer, subject to the criteria set out in the text.

Potential legal and constitutional issues in Quebec

The Civil Code of Québec permits non-competition clauses in employment matters, provided that they are set out in writing and in express terms and are limited, as to time, place and type of work, to what is necessary to protect the employer's legitimate interests. It is important to note that this situation will remain unchanged for all provincially regulated employers in Quebec, which represent the majority of employers in Quebec.

In this context, the reform proposed by Bill C-31 raises interesting issues for federally regulated employers with employees in Quebec and carrying on activities there.

On the one hand, it is generally recognized that Parliament may, to the extent consistent with the division of legislative powers set out in the Constitution Act, 1867, validly regulate the terms and conditions of employment of employees of undertakings that fall within its own legislative jurisdiction—that is, federally regulated undertakings.

On the other hand, Quebec's legislative framework, based on the Civil Code of Québec, including the provisions relating to the contractual content of obligations and the validity of non-competition clauses in employment contracts, remains in principle applicable to employees of federally regulated employers in Quebec, notably in accordance with Quebec's legislative jurisdiction over property and civil rights under that same Constitution Act, 1867.

This overlap is therefore likely to raise at least two (2) important questions regarding a potential conflict of legislative jurisdiction at the constitutional level:

• how far can Parliament go in prohibiting or regulating contractual stipulations in an employment contract whose validity is in principle formally recognized in Quebec under the Civil Code of Québec?
• to what extent can the proposed prohibition be regarded as targeting only labour relations within a federally regulated undertaking, without thereby affecting the application of the generally applicable contractual regime provided for under the Civil Code of Québec?

What federally regulated employers should do now

Despite certain exceptions, the proposed regime remains relatively narrow and could amount to a significant reform for federally regulated employers that use restrictive covenants in their employment contracts and/or other related agreements, including, in particular, agreements connected to or arising from incentive compensation plans. The current uncertainty, however, makes an immediate review of those contracts and agreements difficult.

Pending the coming into force of Bill C-31 and/or its subsequent development, including through the government's exercise of its regulatory powers, federally regulated employers should instead consider:

1. identifying the non-competition clauses currently used in their employment contracts and/or other relevant agreements, including those provided for in or arising from incentive compensation plans;
2. similarly identifying other contractual restrictions that may be captured by a future regulatory framework;
3. closely monitoring Bill C-31's progress through Parliament, as well as the possible adoption of implementing regulations.

Conclusion

If Bill C-31 is passed, it would significantly change the use of non-competition clauses for federally regulated employers and could also influence how those employers will need to design other employment-related restrictions in the future.

For federally regulated employers in Quebec, it may be possible to challenge the proposed amendments to the Canada Labour Code on the basis of the contractual framework already provided for under the Civil Code of Québec, although it remains difficult at this stage to assess the prospects of success of such a challenge. In addition, from a practical standpoint, it would be surprising for a provincially regulated employer established in Quebec to wish to initiate such a challenge and bear alone the costs and inconvenience associated with it.

Our Labour & Employment Group will continue to closely monitor the coming into force of Bill C-31, its evolution and its potential effects on federally regulated employers, particularly in Quebec.