Protecting Trade Secrets When Employees Depart

Several recent court cases in the United States focus on trade secret misappropriation by employees departing technology companies. These high profile American cases are a reminder that Canadian companies face the same issues.

Canadian courts, including the Supreme Court of Canada, have held that an employer’s trade secrets are valuable commercial assets that employees must respect. In particular:

  • Trade secrets are by definition not widely known, are subject to reasonable efforts by employers to keep them secret, and give employers a competitive or economic advantage. There is no comprehensive legislation in Canada governing trade secrets in the civil context.
  • In the employment context, Canadian courts have held that trade secrets can be thought of as a subset or special kind of confidential information.[1]
  • Employers do not need to reduce trade secrets to writing to protect them, but must control and safeguard access to them.
  • Employees owe a duty of good faith and fidelity towards their employers, which requires that they maintain the confidentiality of, and not misuse, trade secrets they are exposed to during and after their employment.[2]
  • Whether information has a sufficient quality of confidence to qualify as a trade secret is fact dependent, but an oft cited (although non-exhaustive) list includes the following factors:
    • the extent to which the information is known outside the employer’s business;
    • the extent to which it is known by employees and others involved in the employer’s business;
    • the extent of measures taken by the employer to guard the secrecy of the information;
    • the value of the information to the employer and potential competitors; and
    • the ease or difficulty with which the information could be properly acquired or duplicated through independent efforts.[3]

How to Protect Your Business

During Employment

Although the common law does provide employers with some protection from employees misusing trade secrets, having employees sign confidentiality agreements prior to commencing employment is recommended and is particularly helpful if an employee does try to steal trade secrets during or after employment. For further insight and tips on drafting confidentiality agreements and restricting access to trade secrets, see our firm’s recent article on the subject.

Employers should also implement policies regarding access to and use and disclosure of trade secrets, which should be acknowledged at the start of employment. Employers can also consider specifically informing employees who have access to trade secrets of their confidential nature and their permitted uses each time they are accessed, and restrict the printing and saving of trade secrets.

An employer’s ability to protect its trade secrets will depend on the degree to which the underlying knowledge or information is known by others. Put another way, in order to gain common law protection, a trade secret should be treated as a secret. If employers are not careful about who has access to information they claim is a trade secret, courts will be hesitant to grant remedies if that information is misappropriated. As a result, employers should strictly control access to trade secrets and only let specifically authorized employees access them on a need-to-know basis. This may require an employer to install new or improved document control and access systems. While potentially costly, the added expense may prove worthwhile, especially for technology companies for which trade secrets form part of the foundation of the business.

After Employment

Once an employee announces his or her resignation or is given notice of termination, an employer should conduct an exit interview to discuss what trade secrets the employee was exposed to during employment and to remind the employee of the ongoing obligations with respect to confidentiality and restrictions on trade secret use that survive employment. This is especially relevant when an employee is departing to work for a competitor.


[1] This reasoning is based on a UK case, Faccenda Chicken Ltd. v. Fowler and others, [1987] 1 Ch 117, [1986] 1 All ER 617 (C.A.).
[2] RT Investment Counsel Inc v Werry (1999), CarswellBC 873, 46 BLR (2d) 66 at para 23.
[3] Pharand Ski Corp v Alberta, 1991 ABQB 5869, 116 AR 326 at para 144.


Article written by Marcus Ostrowerka, Associate at Gowling WLG and Roch J. Ripley, Partner at Gowling WLG.

About the authors:

Marcus Ostrowerka is an associate in Gowling WLG's Vancouver and Calgary offices with a practice focusing on Employment and Labour Law. He defends employers in wrongful dismissal actions, and provides advice on occupational health and safety, privacy, human rights, employment standards and workers’ compensation matters. Marcus also advises on a variety of issues that arise in corporate transactions, including termination and retention agreements, non-competition and non-solicitation agreements, as well as employment and consulting contracts.

Roch Ripley is a partner in the Vancouver office of Gowling WLG who devotes his practice to intellectual property and technology law. Roch delivers strategic advice on how to economically procure and enforce intellectual property rights with a view to helping smaller clients position themselves for investment or acquisition, and to helping larger clients establish portfolios that can be asserted offensively or defensively in litigation, and leveraged in licensing programs. He has particular expertise and experience helping clients in the information technology, energy and clean technology sectors.

 

Gowling WLG is a new international law firm created by the combination of Gowlings, a leading Canadian law firm, and Wragge Lawrence Graham & Co (WLG), a leading UK-based international law firm.

With more than 1,400 legal professionals in 18 cities worldwide, we provide our clients with in-depth expertise in key global sectors and a suite of legal services at home and abroad. We see the world through our clients' eyes, and collaborate across countries, offices, service areas and sectors to help them succeed, no matter how challenging the circumstances.


NOT LEGAL ADVICE. Information made available on this website in any form is for information purposes only. It is not, and should not be taken as, legal advice. You should not rely on, or take or fail to take any action based upon this information. Never disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. Gowling WLG professionals will be pleased to discuss resolutions to specific legal concerns you may have.
Newsletter Issue: 
HR Microscope June 2017