On the ongoing confidentiality obligations of former employees, NDAs, and more. Photo credit: Pexels/Sora Shimazaki
Many employers have trade secrets and other proprietary interests relating to commercially sensitive materials and information. Such information may include intellectual property rights like patents, copyrights, trademarks, and client and prospective client lists that they have significantly invested in.
Where there are proprietary interests, employers are wise to have confidentiality agreements or non-disclosure agreements (“NDA”) in place with current and former employees and contractors in order to protect them from having their information disclosed or used for someone else’s benefit. This is notwithstanding that the common law duty of confidentiality (i.e., derived from case law) provides some useful protections.
What is the duty of confidentiality?
The common law duty of confidentiality is a broad principle of law that a person who receives information from another party in confidence cannot take advantage of it. The receiving party must not make use of it to the prejudice of the person who gave the information without obtaining their consent or facing an action for a breach of confidence.
What is needed to prove a breach of confidentiality?
To prove a breach of confidentiality an employer must satisfy the courts that three factors exist:
- The information itself must have the necessary quality of confidence. This will depend on the relevant circumstances and is usually straightforward to establish. An example is establishing that the information is protected by the employer from being in the public domain.
- The information was provided or made available in circumstances importing an obligation of confidence. This: (a) requires that the employee knew or ought reasonably to have known that the information was given in confidence; and (b) involves an analysis of the individual facts and circumstances. For example: Is it classified as confidential? How was it disclosed? Was it disclosed in order to do the job?
- There must be an unauthorised use or disclosure of the information to the detriment of the employer. This: (a) can be either threatened or actual but must be without the consent of the employer; and (b) can be as a result of it being used for a purpose other than the one for which it was disclosed (e.g., in a new job for the new employer).
Each pertinent case involves a detailed analysis of the facts and circumstances. The recent case of Nativelands Specific Claims Group v. Justice Risk Solutions involves such an action.
Therein the Plaintiffs brought a motion seeking: (a) an interlocutory and permanent injunction prohibiting its former employees or contractors and their companies (the “Defendants”) from competing against their insurance businesses, particularly in relation to specialized First Nations Specific Claims, soliciting or servicing its First Nation clients and prospective clients, or hiring away its employees; and (b) to bar the Defendants from using, reproducing, or otherwise disseminating or disclosing their confidential documents and information.
While there was evidence that the Defendants now serve First Nations clients that used to be clients of the Plaintiffs in roughly the same manner, there was little else proven because:
- None of the Defendants had a non-competition or non-solicitation agreement with the Plaintiffs. Without such agreements employees/contractors are not bound by non-competition or non-solicitation obligations. They may compete with their former employer or client because there is no expectation of non-competition – particularly for contractors.
- Only one Defendant was an employee. The rest were all independent contractors;
- The Defendants didn’t have an overall coherent plan to appropriate business or harm the Plaintiffs when they started their business (i.e., no collusion);
- The evidence did not support the Plaintiffs’ theory that the Defendants were fiduciaries of the Plaintiffs or had any trust-like duties that extended to one, let alone several years after their contractual relationship with the Plaintiffs ceased;
- Most significantly – the evidence did not establish that the Defendants took steps to interfere with or cause the end of any of the Plaintiffs’ client accounts; and
- There was no legal or factual basis to support the Plaintiffs’ request for an injunction given that clients are free to switch providers and any move in providers does not in itself prove any wrongdoing by the Defendants to the Plaintiffs.
However, while there was little evidence of actual misuse of confidential information, the Court did order the return of the Plaintiffs’ documents by requiring the Defendants to search their computers, cellular phones, servers, accounts, storage devices or other electronic devices and physical storage for noted documents and any copies of them.
This was because in law plaintiffs are not required to have a contractual foundation for the misuse or misappropriation of confidential information. All former employees or contractors are prohibited from taking confidential information as a matter of equity. This is the case regardless of whether there is a specific contractual provision in force providing such a protection.
Takeaways:
If you have commercially sensitive materials and information, protect them.
Enter into enforceable written confidentiality agreements, NDAs, and restrictive covenants (non-service, non-solicit, and in limited circumstances non-competes) with your employees and contractors alike.
Ensure that such agreements and covenants are reasonable; they will be unenforceable if they are not.
Sheryl L. Johnson brings a proactive, creative, and vibrant attitude to her labour, employment and human resource law practice. Sheryl has extensive experience in representing clients in both the provincial and federal jurisdictions on all matters relating to employment and labour law, including for example construction labour law, employment related civil wrongful dismissal, human rights, and labour board litigation; privacy, governance, statutory and regulatory compliance, and executive compensation matters; as well as conducting workplace training and workplace investigations. Sheryl is also an avid educator and writer, including authoring a bi-weekly business column in The Niagara Independent and the text: Sexual Harassment in Canada: A Guide for Understanding and Prevention. Sheryl enjoys in her free time giving back to the Niagara community. She is a member of the WIN Council, Chair of the Board of Directors for the Niagara Jazz Festival, Vice-President of the Board of Directors for the YWCA Niagara Region, Secretary of Big Brothers Big Sisters of Niagara Falls Board of Directors, a board member of the Niagara Home Builders Association, and a board member of the Women in Construction group of the Niagara Construction Association.
