In 2024, the Ontario Court of Appeal provided additional commentary and guidance for non-competition provisions in the context of the purchase and sale of a business in Dr. C. Sims Dentistry Professional Corporation v. Cooke.[1] Non-compete provisions are a common restrictive covenant in the sale of a business. Many business owners rely on these provisions when they purchase a business to ensure the vendor is not setting up a new business close-by and in direct competition to the one they just sold. In the Dr. Sims case, the Court of Appeal affirmed the decision of the trial judge that a 5-year 15 kilometer non-compete provision was reasonable in the context of the sale of a dental practice and therefore enforceable with its terms. This article will explore the context of that case, the principles it affirmed, and some examples of other cases where the terms of a restrictive covenant were found to be enforceable. This article will only address the context of restrictive covenants in the sale of a business and will not address restrictive covenants in the employment context.
Prior Case Law
Restrictive covenants are a long-standing legal tool in contracts to assist parties in enforcing certain behaviours following the completion of a transaction. The Supreme Court of Canada in Shafron v. KRG Insurance Brokers (Western) Inc. provides context for restrictive covenants and distinguishes their application in the employment versus business context, citing the relative bargaining power of the parties allowing for more freedom of contract in the latter.[2] In Shafron, the Supreme Court of Canada also references the 1894 House of Lords decision Nordenfelt v. Maxim Nordenfelt Guns and Ammunition Co., in discussing the balancing of restrictive covenants against the public policy of freedom of trade, with the reasonableness of the restriction being a main consideration in upholding a restrictive covenant.[3] Restrictive covenants generally go against public policy as it is their nature is to restrict trade, therefore the terms must be reasonable to allow the restrictive covenant to be enforced.[4]
The sale of goodwill is a defining characteristic in the sale of a business. The payment for goodwill is meant to protect the business once it is in the hands of the purchaser. The restrictive covenant is a tool used to provide the purchaser with comfort that the vendor will not encroach on the goodwill they have just purchased.[5] In Elsey, the Supreme Court of Canada emphasized that the protection of the purchaser from the vendor as a competitor is the very thing that allows the goodwill of a business to be saleable in the marketplace.[6]
In 1982 in Tank Lining Corp. v. Dunlop Industries, the Ontario Court of Appeal considered the impact the lack of competition may have on the public in the context of a non-compete provision.[7] Here the restrictive covenant prohibited both parties from competing in the industry for a period of two years on termination of the agreement.[8] In Tank Lining the Ontario Court of Appeal found that factors that should be considered when determining whether or not a restrictive covenant is reasonable include: (1) whether there is a benefit to both sides; (2) whether there a proprietary interest that should be protected; (3) the equality of bargaining power between the parties; (4) if the parties received legal advice; and (5) whether the vendor has acknowledged the importance of the restrictive covenant.[9] In practice, the length of time, geographic area, and the scope of the activity that is being restricted, are all considerations which should be taken into account when drafting restrictive covenants in the context of the sale of a business. The court will only interfere in exceptional cases.[10]
Below are a few examples of restrictive covenants found to be enforceable in the context of the sale of a business by the court in recent years:
| Case Name |
Terms |
| Martinrea International Inc. v. Canadian Hydrogen Energy Company Co. (2005)[11] |
· Five Years
· Worldwide
· Proprietary technology made the large geographic scope reasonable in the circumstances. |
| GDL Solutions Inc. v. Walker et al., 2012[12] |
· Three Years Non-Compete and Five Years Non-Solicit
· Within 10kms of the Province of Ontario |
| Martin v. ConCreate USL Limited Partnership, 2012[13] |
· Two Years
· All of Canada
· Restrictive covenants was in the context of a Partnership agreement. |
| Dentalcorp Health Services v Poorsina, 2023 [14] |
· Two Years
· 10kms
· Dental practice in Hamilton Area. |
| Jerger et al. v Kaloti et al, 2023[15] |
· Five Years
· 15kms
· Also covenanted to not use branding within the “GTA” for the five year period |
| Demand Science Group, LLC v. Gladish, 2024[16] |
· Three Years
· All of Canada and the United States
· Parties agreed that the geographic scope was reasonable given that was the area in which the product was being sold. |
| Parkland Corporation v 2700455 Ontario Inc., 2025,[17] |
· Ten Years
· Exclusive supplier contract of Esso-branded signs, equipment, and fuel. |
The Dr. Sims Case
In 2017, Dr. Sims purchased the shares of a dental practice from Dr. Cooke for a purchase price of $1.1 million.[18] Included in the closing documents was a non-solicitation and non-competition covenants on the part of Dr. Cooke for a period of five years, and a geographic radius of 15 kilometers from the practice.[19] This restrictive covenant began following the end of Dr. Cookes association with the dental practice, as Dr. Cooke was working as an associate for Dr. Sims for a period of time following the closing of the transaction.[20] The end of Dr. Cookes time working as an associate of the practice took place in December 2019.[21] Shortly thereafter, in 2020, Dr. Cooke communicated to Dr. Sims, through his legal counsel, his intention to practice at a dental clinic located 3.3 kilometers from the practice owned by Dr. Sims.[22] Dr. Cooke took the position that the non-compete covenants were unenforceable.[23] The appeal considered whether or not the non-competition covenant was reasonable and therefore enforceable.[24] The Court of Appeal affirmed the decision of the trial judge, which held that the non-compete covenant was indeed reasonable and therefore enforceable according to its terms.[25]
This decision provided us with additional clarity on the distinction between restrictive covenants in business versus employment circumstances, as well as how the court should assess the reasonableness of both time period and geographic scope of these restrictive covenants.
Key Considerations in Restrictive Covenants in the Sale of a Business
It was made clear that the terms of the non-compete in this case were reasonable and that it pertained only to the particular business being sold and not all businesses of the vendor.[26] The court affirmed the principle that in the context of commercial agreements, with parties of equal bargaining power, it is unlikely that the they will intervene, as the parties are better positioned to determine the reasonableness of the bargain, unlike the employment context. Geographic scope of restrictive covenants in this framework should reflect the area in which the business carries on its trade and activities, which can mirror the distance customers are travelling from to access the goods and services of the business being sold.[27] In this case, a fifteen-kilometer radius was found to be reasonable. Five-year restrictive covenants are oftentimes found to be reasonable, and the court will look to the nature of the business and the frequency/behaviour of customers to determine the reasonableness of the length of the restrictive covenant.[28] In this case, the five-year term was considered reasonable, with the trial judge accepting of evidence that patient/customer trust can take several years to establish.[29] The court will also consider whether the actions of the vendor would work to devalue the goodwill which they sold to the purchaser.[30]
Cases Following Dr. Sims
Following the Dr. Sims case and its affirmation of the enforcement of restrictive covenants in the commercial context, two other cases of note have been heard in Ontario attempting to address similar issues. Ang v. Ang serves to highlight the enforceability of restrictive covenants in a unanimous shareholders agreement.[31] In Ang, there were standard provisions of non-compete and non-solicit, as well as restrictive covenants pertaining to the use of confidential information of the corporation for a period of three years. Even though this was in the context of a shareholders agreement and not the sale of the business in its entirety, this case affirmed and upheld the commercial agreement terms. In Parkland Corporation v. 2700455 Ontario Inc. the court also affirmed that the employment context differs from the commercial context in its relative bargaining power of the parties and demonstrated the courts unwillingness to impute additional terms in the commercial context. [32]
[1] Dr. C. Sims Dentistry Professional Corporation v. Cooke, 2024 ONCA 388 (CanLII), https://canlii.ca/t/k4mfs.
[2] Shafron v. KRG Insurance Brokers (Western) Inc., 2009 SCC 6 (CanLII), [2009] 1 SCR 157, https://canlii.ca/t/226fm, at paras 18 and 19.
[3] Nordenfelt v. Maxim Nordenfelt Guns and Ammunition Co., [1894] A.C. 535.
[4] Shafron at paras 15-17.
[5] Shafron at para 21, 22.
[6] Elsley v. J.G. Collins Ins. Agencies, 1978 CanLII 7 (SCC), [1978] 2 SCR 916, https://canlii.ca/t/1mkbk.
[7] Tank Lining Corp. v. Dunlop Industrial Ltd., 1982 CanLII 2023 (ON CA), https://canlii.ca/t/g194r.
[8] Ibid.
[9] Ibid.
[10] Ibid.
[11] Martinrea International Inc. v. Canadian Hydrogen Energy Company Co. (2005), 2005 CanLII 36436 (ON CA), 9 B.L.R. (4th) 11 (C.A.), https://canlii.ca/t/1lrjg.
[12] GDL Solutions Inc. v. Walker et al., 2012 ONSC 4378 (CanLII), https://canlii.ca/t/fsb7w.
[13] Martin v. ConCreate USL Limited Partnership, 2012 ONSC 1840 (CanLII), https://canlii.ca/t/fqs5b.
[14] Dentalcorp Health Services v. Poorsina, 2023 ONSC 3531 (CanLII), https://canlii.ca/t/jxpb9.
[15] Jerger et al. v. Kaloti et al., 2023 ONSC 4544 (CanLII), https://canlii.ca/t/jzjmt.
[16] Demand Science Group, LLC v. Gladish, 2024 ONSC 214 (CanLII), https://canlii.ca/t/k27fw.
[17] Parkland Corporation v. 2700455 Ontario Inc., 2025 ONSC 1898 (CanLII), https://canlii.ca/t/kb8v4.
[18] Supra note 1 at para 2.
[19] Ibid at para 3.
[20] Ibid at para 3.
[21] Ibid at para 4.
[22] Ibid.
[23] Ibid
[24] Ibid at para 6.
[25] Ibid at para 25.
[26] Ibid at para 25.
[27] Ibid at paras 22 and 23.
[28] Ibid at paras 18 and 19.
[29] Ibid at para 18.
[30] Ibid at para 20.
[31] Ang v. Ang, 2025 ONSC 2804 (CanLII), https://canlii.ca/t/kc07p.
[32] Parkland Corporation v 2700455 Ontario Inc., 2025 ONSC 1898 (CanLII), https://canlii.ca/t/kb8v4, at para 93.
