Q. What respect do Ontario courts have for restraint of trade contracts?

A. Public policy sides against non-compete/non-solicit enforcement.

As a starting point, public policy sides against enforcing restraint of trade provisions. According to Nordenfelt v. Maxim Nordenfelt Guns Ammunition Co., [1894] A.C. 535, [1891-4] All E.R. Rep. 1, at page 565:

The public have an interest in every person's carrying on his trade freely: so has the individual. All interference with individual liberty of action in trading, and all restraints of trade of themselves, if there is nothing more, are contrary to public policy, and therefore void. That is the general rule. But there are exceptions: restraints of trade and interference with individual liberty of action may be justified by the special circumstances of a particular case. It is a sufficient justification, and indeed it is the only justification, if the restriction is reasonable -- reasonable, that is, in reference to the interests of the parties concerned and reasonable in reference to the interests of the public, so framed and so guarded as to afford adequate protection to the party in whose favour it is imposed, while at the same time it is in no way injurious to the public.

More recently, the Supreme Court of Canada addressed very limited conditions under which non-compete/non-solicit provisions are indeed enforced on a case-by-case/exceptional basis. According to Elsley v. J.G. Collins Insurance Agencies Ltd., [1978] 2 S.C.R. 916, at pp. 923-24:

A covenant in restraint of trade is enforceable only if it is reasonable between the parties and with reference to the public interest. As in many of the cases which come before the courts, competing demands must be weighed. There is an important public interest in discouraging restraints on trade, and maintaining free and open competition unencumbered by the fetters of restrictive covenants. On the other hand, the courts have been disinclined to restrict the right to contract, particularly when that right has been exercised by knowledgeable persons of equal bargaining power. In assessing the opposing interests the word one finds repeated throughout the cases is the word "reasonable". The test of reasonableness can be applied, however, only in the peculiar circumstances of the particular case. Circumstances are of infinite variety. Other cases may help in enunciating broad general principles but are otherwise of little assistance.

It is important, I think, to resist the inclination to lift a restrictive covenant out of an employment agreement and examine it in a disembodied manner, as if it were some strange scientific specimen under microscopic scrutiny. The validity, or otherwise, of a restrictive covenant can be determined only upon an overall assessment, of the clause, the agreement within which it is found and all of the surrounding circumstances.

Meanwhile, according to Computer Centre Personnel Ltd. (c.o.b. Computer Centre) v. Z [1976] O.J. No. 810 (Ont. High Ct.):

The covenant is in restraint of trade and therefore is prima facie unenforceable. However, if the plaintiff has interests that can or should receive protection by an injunction, then the covenant will be enforced if it is (a) reasonable and (b) consistent with the interests of the public.

Finally, Shaw Laboratories Ltd. v. Rilett, [1984] O.J. No. 1138 confirms employer’s onus in passing four-step test for enforcement of non-compete/non-solicit provisions in issue:

In deciding on the validity of a covenant in restraint of trade it is useful to follow the four stage inquiry referred to by Blair, J. in Tank Lining Corp. v. Dunlop Industrial Ltd., 40 O.R. (2d) 219 at 223. The first question is whether or not the covenant was in restraint of trade. There is no doubt here that the covenant not to compete within the City of London for two years was in restraint of trade. The second question is whether the restraining clause is against public policy and is therefore prima facie void. The third question is, can the restraint be justified as reasonable in the interests of the parties. The fourth question is, can the restraint also be justified as reasonable with reference to the interests of the public.…The burden of proof is on the plaintiff to show on a balance of probabilities that the restraint is justified as reasonable in the interest of the parties.