How to Protect Trade Secrets Following the Departure of a key Employee

Workforce mobility is constantly on the rise and it reminds employers that, in many cases, their employees' know-how figure among their company's most significant assets. This realization is accompanied by an important consideration, namely that employers must constantly remember that their company could suffer should an employee choose to leave them and work for a competitor.

Indeed, the times when employees refrained from joining the ranks of a competitor by virtue of their unfailing loyalty toward their employer are long gone. Workforce mobility has now gone from the exception to the norm, and employers must consequently manage and protect their trade secrets.

Courts have recognized the fundamental value of the corporate assets that are trade secrets, as well as the corollary obligation of employees to respect their confidential nature.

Labour laws will generally define trade secrets as a form of confidential information to which an employee may have access within the scope of their duties. However, not all confidential information constitutes a trade secret. For example, a trade secret is a secret manufacturing formula or process that is unique to the employer and that was revealed in secrecy to the employee for the sole purpose of having the latter manufacture whatever it is that can be made with this secret. Chemical formulas, recipes or manufacturing processes that require one to know the exact quantities of the products used in the manufacturing, how to use them so that the desired reaction may be achieved and the degree of temperature required to induce the intended reaction can also be considered as trade secrets.^[1]

In a larger sense, confidential information, such as unpublished financial statements, client lists, marketing strategies and internal memos regarding upcoming transactions or business opportunities can also be somewhat protected.^[2] However, employers should be aware that not all practical information that pertains to a company and that may be useful to one of its competitors will be deemed as confidential information:

"The methods used to compete against a competitor are not in themselves confidential information if they do not include characteristics that are absolutely specific and unique to such company and if no measures were taken to treat them as such.^[3] "[Translation]

In order to protect the corporate assets that are trade secrets, it is in the best interest of employers to do all things necessary to eliminate any doubt—for the employees who have access to the trade secrets and for the courts seized with a dispute regarding their disclosure—that they are indeed trade secrets. Many elements will be analyzed by the courts in order to recognize the existence of a trade secret:^[4]

• The extent to which the information is known outside the company;
• The extent to which the information is known by employees and other individuals implicated in the company;
• The extent of the measures deployed to protect the secrecy of the information;
• The value of the information for the owner of the trade secret and for their competitors;
• The amounts invested in the development of the information;
• The ease or the difficulty with which the information can be correctly acquired or reproduced by others;
• The extent to which the owner of the trade secret and the employee to whom it was disclosed treat the information as secret.

Protection of confidential information and secrets

Ideally, an employer concerned with protecting their trade secrets should make all employees who have access to them sign a confidentiality agreement or a non-disclosure agreement. The signing of a non-competition clause may also be appropriate, namely in cases where employees who, due to their position, gain a certain access to the company’s trade secrets such that if they left the company to join a competitor, the employer would suffer significant or even irreparable damage.

By definition, a non-competition clause is a clause by which an employee commits, should they leave the company, to not work independently or for another employer in the same field as their former employer.

Section 2089 of the Civil Code of Québec ("CCQ ") stipulates the conditions that any non-competition clause must satisfy in order to be valid and a source of obligation:

1. The clause must be included in a written contract;
2. The employee's commitment not to compete with their employer in the event of the termination of their contract must be stated in express terms;
3. The clause must be limited in time and specify a location and a type of work;
4. The clause must be reasonably limited to what is necessary to protect the employer's legitimate interests.^[5]

Therefore, a non-competition clause must reconcile the employer’s need to ensure their own protection from a commercial standpoint with the former employee’s need to be mobile within the job market following the termination of their employment.

Upon its enforcement by the courts, a non-competition clause considered unreasonable will be declared void and therefore be deemed non-existing, in which case the judge will not be authorized to amend or adjust the clause, e.g. by decreasing its term or by limiting its jurisdiction. The clause is either valid or not.^[6]

In the absence of a contractual agreement, the employer is somewhat protected by the duty of loyalty that is imposed on all employees by virtue of section 2088 of the CCQ.

This legal duty of loyalty does indeed impose on the employee restrictions with regard to the nature and the extent of the information that they may use after their departure and aims to proscribe unfair competition in which the employee may partake following their departure.

The duty of loyalty applies to all employees, regardless of the position they occupied. It is effective during the employment and remains so during a reasonable period of time following the termination of the employment contract. According to case law, while the reasonable period time referred to in section 2088 of the CCQ may vary depending on the position occupied by the employee in question, it shall not exceed a few months, as established by the Quebec Court of Appeal:

 "The duration of the post contractual duty of loyalty depends on the circumstances in each case, but rarely exceeds a few months. There may be exceptions, but they are just that and must remain so if one does not want to unduly limit the principle of competition that governs our society and advantages employers to the detriment of employees."^[7]

An employer who accuses a former employee of having failed to carry out their duty of loyalty must remember that, depending on the court and notwithstanding the duty of loyalty, the purpose of the principle of free competition is to allow a former employee to compete freely, even vigorously and aggressively, against their former employer.^[8]

Therefore, the duty of loyalty stipulated in section 2088 of the CCQ is interpreted in a restrictive manner, as the survival of a contractual obligation beyond the end of the contract that gave rise to it is outside of civil law and, within the organization of our society, competition in business is the rule.^[9]

Finally, employers must keep in mind the fact that there is a thin line between, on the one hand, confidential information belonging to a company that remains protected by virtue of the duty of loyalty and, on the other hand, the personal knowledge and skills that an employee has acquired throughout the years and is entitled to bring to a competitor.^[10]