In Ontario, starting a competing business while you are still employed is a severe breach of your duty of loyalty. If you use company time, resources, or client lists to prepare your new venture, your employer can generally fire you with “just cause,” legally stripping you of your right to any common law severance pay.
The entrepreneurial spirit is strong across Ontario, and many professionals in Toronto, Ottawa, and Kitchener dream of leaving their corporate jobs to start their own companies. However, the transition from employee to business owner must be handled with extreme legal caution.
A massive legal mistake that many ambitious employees make is laying the groundwork for their new competing business before they actually resign. They might use their lunch breaks to register a corporation, use their work laptop to build a website, or subtly mention their new services to existing clients. 💼
Under Ontario employment law, doing this while still collecting a paycheque from your current employer is a direct conflict of interest. Below, we outline exactly how courts view the “duty of fidelity,” why preparing to compete can result in a just cause termination, and what steps you must take to protect your career and your new business.
Step-by-Step Guide to the Duty of Loyalty in Ontario
Whether you are a standard sales representative in Mississauga or a high-level executive in Waterloo, you owe your employer a basic level of loyalty. Here is how employment lawyers and the Superior Court of Justice evaluate competing businesses.
Step 1: Understanding the Basic Duty of Fidelity
Every single employee in Ontario owes their employer a “duty of fidelity” (loyalty). This means that while you are employed, you cannot actively harm your employer’s business interests.
You are legally allowed to merely think about starting a business, and you can even take basic, off-the-clock steps like researching market trends. However, the moment you begin actively competing or stealing business opportunities while still employed, you cross the line into serious misconduct.
Step 2: Avoiding the Trap of Company Resources
The easiest way for an employer to prove just cause is to check your digital footprint. If you use your company-issued laptop, company cell phone, or the office Wi-Fi to register your new business, design your logo, or email potential suppliers, you are violating your employment contract. 💻
Courts generally agree that using an employer’s own resources to build a rival company is equivalent to corporate theft. Always use your personal devices and work on your business strictly outside of your scheduled working hours.
Step 3: The Danger of Soliciting Clients and Co-Workers
Perhaps the most severe violation is “poaching.” If you quietly approach your employer’s current clients and suggest they move their accounts to your new, soon-to-open business, you are directly stealing revenue.
Similarly, trying to convince your best co-workers to quit and join your new startup while you are all still employed is a massive red flag. Doing either of these things gives your employer incredibly strong grounds to terminate your employment without offering a single dollar of severance pay.
Step 4: Recognizing Fiduciary Duties for Senior Staff
If you are a manager, director, or C-suite executive, you owe an even higher standard known as a “fiduciary duty.” Because you have access to highly sensitive corporate strategy, your restrictions are much tighter. 🔒
Fiduciaries are often restricted from competing even after they resign, let alone while they are still working. If a fiduciary is caught setting up a rival firm, the company will not only fire them for cause but may also sue them for massive financial damages at the Superior Court of Justice.
Permitted Actions vs. Illegal Competition
| Employee Action | Legal Status Under Ontario Law |
|---|---|
| Brainstorming a business idea on the weekend. | Permitted. Mere preparation and thought outside of working hours is generally perfectly legal. |
| Registering a domain name using a company laptop. | High Risk. Using company property for a personal, competing venture breaches your duty of loyalty. |
| Telling current clients to follow you to your new firm. | Illegal Misconduct. This is direct solicitation and typically justifies immediate termination with cause. |
How Much Does a Wrongful Dismissal Lawsuit Cost?
If you are fired for cause regarding a side business, you might still want to consult a law firm, as employers sometimes jump the gun without solid proof. As of May 2026, here are the typical costs:
- Initial Legal Review: An employment lawyer will usually charge between $300 and $500 CAD to review your termination letter and your employment contract’s non-compete clauses.
- Contingency Fees: If the employer was completely wrong and fired you without proof, a lawyer may take your wrongful dismissal case for roughly 30% of your final severance payout.
- Court Filing Fees: Filing a Statement of Claim at the Superior Court of Justice carries a standard fee of approximately $242 CAD.
How Long Does the Legal Process Take?
Disputes over just cause and competing businesses are heavily contested.
- Demand Letters: Initial negotiations through legal counsel can take 4 to 8 weeks.
- Mediation: If both sides agree to try and settle, scheduling a mediator typically takes 6 to 9 months.
- Full Trial: Because these cases involve deep investigations into emails and client lists, a full trial can easily take 1.5 to 2 years to reach a conclusion.
Frequently Asked Questions (FAQ)
Can I start a non-competing side hustle while employed?
Generally, yes. If your side business is in a completely different industry and does not interfere with your working hours or performance, it is usually permitted, though you should check your contract for “moonlighting” clauses.
What happens if I signed a non-compete agreement?
In Ontario, the Employment Standards Act bans non-compete agreements for most standard employees. However, “non-solicitation” agreements (preventing you from stealing clients after you leave) are still highly enforceable.
Will I get Employment Insurance (EI) if I am fired for competing?
If your employer marks “Fired for Misconduct” on your Record of Employment (ROE) because you breached your duty of loyalty, Service Canada will likely deny your EI benefits.
Can the company sue me for the revenue my new business makes?
Yes, especially if you are a fiduciary or if you stole confidential client lists. The employer can seek an injunction to shut your business down and sue for the profits you made using their stolen data.
Leave a Reply