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Protecting trade secrets when employees depart

trade secretsSeveral recent court cases in the United States focus on the misappropriation of trade secrets 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.By: Roch J. Ripley, Gowling WLG

Occasional Contributors

In addition to our regular guest bloggers, Inside Internal Controls blog published by First Reference, provides occasional guest post opportunities from various subject matter experts on the topics of risk management and best practices in finance and accounting, information technology, environmental issues, corporate governance, sales/marketing and operations, not-for-profits and business related issues in Canada. If you are a subject matter expert and would like to become an occasional blogger, please contact Yosie Saint-Cyr at editor@firstreference.com. If you liked this post and would like to subscribe to Inside Internal Controls blog click here.
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