An Employer’s Guide on Protecting Confidential Information and Trade Secrets

All employees have an implied duty of good faith not to disclose confidential information or trade secrets; this duty is owed regardless of whether there is a non-disclosure clause in the employment contract. The law does not usually prohibit employees from using the skills and knowledge that they acquire from a past job to a new one.

Canadian law aims to strike a balance between protecting valuable business information that is not known to the public, with an employee’s right to apply their skills and knowledge to new employment.

WHAT IS CONSIDERED CONFIDENTIAL INFORMATION?

It is important to note that the terms “confidential information” and “trade secret” are often used interchangeably. Confidential information can be broadly defined as any information that can be used to generate a profit, is not accessible to the public, is reasonably protected, and is communicated to others with the intention of it remaining a secret. This can include formulas, processes, designs, customer lists, recipes, blueprints, financial information, business plans, etc.

PROTECTING CONFIDENTIAL INFORMATION

The law surrounding trade secrets is enforced by the courts in two ways: through contract and tort. This means that parties can agree and sign a contract that contains a paragraph such as a non-disclosure clause or the employer can sue for breach of fiduciary duty (if the employee is in a high-level position) or breach of confidence.

Where employees threaten to disclose or actually reveal the confidential information, the law provides employers with two remedies:

  1. If the employee released confidential information, the employer may sue the employee in court for damages (such as compensation).
  2. If the employee has threatened to disclose confidential information, the employer may request that the Court order an injunction to prevent the employee from sharing that information.

WHAT IS BREACH OF CONFIDENCE?

A breach of confidence occurs where Party A conveys confidential information to Party B with the intention of it remaining confidential and then Party B misuses or discloses that information, which causes Party A to suffer a loss.

When suing for breach of confidence, the onus is on the Plaintiff or Party A to show that the information was at all times confidential, was communicated in confidence, and that it was misused by the Defendant or Party B, which caused Party A to suffer a loss.

  1. The Information Was Confidential

In GasTOPS Ltd. v. Forsyth, the court determined that it will consider the following to determine whether the information was in fact confidential:

  • the extent to which the information is known outside the business;
  • the extent to which it is known by employees and others involved in the business;
  • measures taken to guard the secrecy of the information;
  • the value of the information to the holder of the secret and to its competitors,
  • the effort or money expended in developing the information;
  • the ease or difficulty with which the information can be properly acquired or duplicated by others; and
  • whether the holder and taker of the secret treat the information as secret.

In employment-related cases, the courts also consider whether:

  • the employer possesses a trade secret;
  • the employee knew it was secret;
  • the employee acquired knowledge it during his/her employment; and
  • the employee has, after termination of his/her employment, used of this knowledge improperly.
  1. The Information Was Communicated in Confidence

In CPC International Inc. v. Seaforth Creamery Inc., the court further clarified that to be considered confidential, the information must be specific, must not be known to the general public, the owner must treat the information as confidential, and the owner must be clear that the information is a secret. However, the last point is not determinative. The court will consider if a reasonable person in the same shoes as the employee would have determined that the information being told to him or her was being done in confidence. 

  1. The Information Was Misused and Caused A Loss

The last branch of the test, that it was misused by Party B and caused Party A to suffer a loss, is fairly straight forward and will depend on the facts of the case.

CONCLUSION

If you are an employee or employer and have questions about non-disclosure agreements, protecting confidential information, or other employment matters, contact Walker Law civil litigation lawyers for a consultation.

Please note that this article is intended for information purposes only. It is not intended to provide legal advice. If you have any specific questions, please contact a lawyer.

Tags: Employment Litigation Law, Civil Litigation Law, Contract disputes

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