{"id":6687,"date":"2024-07-09T14:00:22","date_gmt":"2024-07-09T18:00:22","guid":{"rendered":"https:\/\/www.millerthomson.com\/ontarios-court-rules-non-competition-clauses-selling-business\/"},"modified":"2025-07-10T16:59:30","modified_gmt":"2025-07-10T20:59:30","slug":"ontarios-court-rules-non-competition-clauses-selling-business","status":"publish","type":"post","link":"https:\/\/www.millerthomson.com\/en\/insights\/commercial-litigation\/ontarios-court-rules-non-competition-clauses-selling-business\/","title":{"rendered":"Ontario\u2019s top court rules on non-competition clauses when selling a business"},"content":{"rendered":"\n<h2 class=\"wp-block-heading\">1. The Dispute<\/h2>\n\n\n\n<p>The Court of Appeal for Ontario (the \u201c<strong>ONCA<\/strong>\u201d) recently provided guidance to business owners on the enforceability of restrictive covenants, such as non-competition provisions, in the context of the sale of a business.<\/p>\n\n\n\n<p>In <a href=\"https:\/\/www.canlii.org\/en\/on\/onca\/doc\/2024\/2024onca388\/2024onca388.html\" target=\"_blank\" rel=\"noopener\"><em>Dr. C. Sims Dentistry Professional Corporation v. Cooke<\/em><\/a>, 2024 ONCA 388 (CanLII), Dr. Sims purchased the dentistry practice of Dr. Cooke by way of an Agreement of Purchase and Sale (the \u201c<strong>APS<\/strong>\u201d).<\/p>\n\n\n\n<p>As a term of the sale, Dr. Cooke agreed to a non-competition\/non-solicitation covenant, both as part of the APS and in a separate agreement with identical terms.\u00a0The restrictive covenant prohibited Dr. Cooke from engaging in the practice of dentistry, or permitting his name to be used in such a practice, for a period of five years within a radius of 15 kilometers of his former practice (the \u201c<strong>Non-Compete<\/strong>\u201d).<\/p>\n\n\n\n<p>Approximately three years later, Dr. Cooke notified Dr. Sims that he intended to work at a dental practice 3.3 kilometers away, and then did in fact begin working at that practice. Dr. Sims commenced legal proceedings.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">2. The Court\u2019s Decision<\/h2>\n\n\n\n<p>Enforceability of the Non-Compete was the key issue at trial.&nbsp; The trial judge concluded that the Non-Compete was enforceable. Dr. Cooke appealed. The issue before the ONCA was whether the trial judge had erred in concluding that the Non-Compete was reasonable and, therefore, enforceable.<\/p>\n\n\n\n<p>Dr. Cooke argued that the trial judge made a reversible error by putting the onus on him to establish that the Non-Compete was unreasonable.&nbsp; Dr. Cooke\u2019s position was that the onus should have been on Dr. Sims, as the party seeking to enforce the Non-Compete, to prove that the Non-Compete was reasonable.&nbsp; The ONCA did not agree.<\/p>\n\n\n\n<p>The ONCA relied on its prior decision in <a href=\"https:\/\/www.canlii.org\/en\/on\/onca\/doc\/2016\/2016onca168\/2016onca168.html\" target=\"_blank\" rel=\"noopener\"><em>MEDIchair LP v. DME Medequip Inc<\/em><\/a>., 2016 ONCA 168 (CanLII), which itself relied on the Supreme Court of Canada\u2019s decision in <a href=\"https:\/\/www.canlii.org\/en\/ca\/scc\/doc\/2013\/2013scc45\/2013scc45.html\" target=\"_blank\" rel=\"noopener\"><em>Payette v. Guay inc<\/em><\/a>., 2013 SCC 45 (CanLII), for the proposition that the \u201ccourts will give more scrutiny to the reasonableness of a restrictive covenant in the employment context, while applying a presumption of validity to such clauses where they have been negotiated as part of the sale of a business.\u201d<\/p>\n\n\n\n<p>In other words, the legal principles applicable to restrictive covenants depend on whether the covenants are part of the sale of a business or an employment contract. &nbsp;This distinction is drawn because parties negotiating the sale of a business have greater freedom of contract than parties negotiating an employment contract.<a href=\"#_ftn1\" name=\"_ftnref1\">[1]<\/a>&nbsp; Accordingly, the common law rules governing restrictive covenants will apply more strictly in the context of the sale of a business than in the employment context.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">3. Conclusion<\/h2>\n\n\n\n<p>Since restrictive covenants in the business sale context protect a purchaser\u2019s interest in the goodwill of the acquired business, they attract less scrutiny from the courts than restrictive covenants in the employment context.&nbsp; Accordingly, where a vendor and a purchaser with equal bargaining power enter into a business sale agreement, only in exceptional cases will the courts interfere with the parties\u2019 judgment of what was reasonable at the time.<\/p>\n\n\n\n<p>Should you have any questions regarding restrictive covenants or disputes relating to the purchase or sale of a business, please do not hesitate to contact the authors.<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<p><a href=\"#_ftnref1\" name=\"_ftn1\">[1]<\/a> For example, the <em>Employment Standards Act, 2000<\/em> in Ontario prohibits the inclusion of non-competition clauses in employment contracts or other agreements with the following limited exceptions:&nbsp; 1.&nbsp; Where the employee is an executive, such as a chief executive officer; or 2. In the context of a sale of a business where the purchaser hires the seller as an employee immediately following the sale of the business to the purchaser.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>1. The Dispute The Court of Appeal for Ontario (the \u201cONCA\u201d) recently provided guidance to business owners on the enforceability of restrictive covenants, such as non-competition provisions, in the context of the sale of a business. In Dr. C. Sims Dentistry Professional Corporation v. Cooke, 2024 ONCA 388 (CanLII), Dr. Sims purchased the dentistry practice [&hellip;]<\/p>\n","protected":false},"author":86,"featured_media":14399,"parent":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[545],"insight-format":[416],"class_list":["post-6687","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-commercial-litigation"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.1.1 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Ontario\u2019s top court rules on non-competition clauses when selling a business | Miller Thomson<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.millerthomson.com\/en\/insights\/commercial-litigation\/ontarios-court-rules-non-competition-clauses-selling-business\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Ontario\u2019s top court rules on non-competition clauses when selling a business | Miller Thomson\" \/>\n<meta property=\"og:description\" content=\"1. The Dispute The Court of Appeal for Ontario (the \u201cONCA\u201d) recently provided guidance to business owners on the enforceability of restrictive covenants, such as non-competition provisions, in the context of the sale of a business. In Dr. C. Sims Dentistry Professional Corporation v. 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