Trade-Secrets and the Departing Employee

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Concerned about departing employees who might have confidential information about your business and clients? Or maybe you are the ex-employee and you are unsure of where the line is drawn when departing one job to start another.

In Plaza Consulting Inc. v. Grieve et al , 2013 ONSC 5338 (CanLII), the court addressed an injunction application by QA Consultants, a Canadian company offering software testing and quality assurance services, against former employees and consultants who started a competing business. The court provides some guidance on how these matters are held, when ex-employees are accused of misappropriating confidential information and poaching customers. In this case, the court says:

  • Whether dealing with employees who allegedly misappropriate their former employer’s business methods in breach of a restrictive covenant or in breach of fiduciary duties, the employer must at the very least establish that it “has a proprietary interest that is entitled to protection.” Aon Consulting Inc. v Watson Wyatt & Co., 2005 CarswellOnt 3706, at para 16 (SCJ). Here, the court concludes that the confidential information in question is “highly generic”. Remember that “[a] trade secret cannot be within the realm of general skills or knowledge.”
  • A party who receives allegedly confidential information and who is accused of misusing it must have done so to the detriment of the party that provided the information in the first place. International Corona Resources Ltd. v Lac Minerals Ltd. 1989 CanLII 34 (SCC), (1989), 26 CPR (3d) 97, at 103(SCC). In this case, the court found that the information in question was not used to the detriment of the plaintiff.
  • In the case of the allegations of solicitation of former clients or employees of QA Consultants, the court indicated that, in these agreements, the restrictive covenants were sufficiently vague that the allegations made against the ex-employees were not “clear” breaches of those covenants. The vague definition in the agreements did not help the case. Ultimately, the injunction application was dismissed.

Remember to get advice on the restrictive covenants in employment agreements. Both employees, consultants and employers should understand the scope of confidentiality obligations and non-solicitation restrictions.

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