Sophisticated employers in Canada recognize that the potential costs associated with employee turnover extend far beyond the cost of replacing departing employees. Departures can also place critical business assets at risk.
A departing employee may engage in the unauthorized use or disclosure of confidential information ranging from technological know-how, product roadmaps and marketing strategies to critical information about clients and suppliers. Departing employees may also interfere with the employer’s relationships with customers, suppliers, and other employees.
So what strategies can Canadian employers use to manage these risks?
Protection of confidential information
While Canadian courts tend to support employee mobility, they generally have little patience for employees who use confidential business information for personal gain. The courts have long recognized the commercial necessity of protecting against misuse of such information. They will typically impose an obligation of confidentiality on employees even in the absence of express clauses in employment contracts.
Canadian courts assessing whether information is confidential consider factors similar to those considered by U.S. courts:
- the value of the information (to both the employer and to competitors);
- the extent to which the information is distinct from information available in the public domain (e.g., how “secret” it is); and
- the extent of measures taken by the employer to guard the secrecy of the information.
In short, if the information is valuable and secret and the employer has taken commercially reasonable measures to keep it secret, courts will generally grant legal remedies against employees who try to take it.
Employers who adopt — and enforce — policies designed to protect confidential information will generally have greater success when seeking assistance from Canadian courts. Effective policies include those restricting access to only the persons who “need to know” as part of their duties. Confidential information should be kept in the workplace, where possible.
When such material must leave the premises (in either paper or electronic form), measures should be taken to reduce the risk of release to the public.
Contractual protection of commercial relationships and good will
Employers seeking to protect commercial relationships and good will often turn to restrictive clauses in employment agreements, such as nonsolicitation and noncompetition clauses. However, Canadian courts view such “restrictive covenants” as illegal and unenforceable unless they are persuaded that the restrictions are both reasonable and reasonably necessary in all of the circumstances.
As an employer, you must establish that you have a legitimate proprietary interest to protect. Any contract clause designed to protect this interest must be reasonable with respect to the time period during which it operates, the area covered and the activities prohibited.
Restrictions must be focused — a “one-size-fits-all” approach is ill-advised. Employers who try to capture too much with overly broad language may be left without any protection. Unreasonable clauses will be ruled invalid.
Canadian courts will consider “all of the circumstances” surrounding the employment relationship to determine whether a specific restriction is “fair.” Employers should keep this “fairness” requirement in mind when asking employees to agree to such restrictions. Employers should also consider compensation models or other tradeoffs to maximize the chances of success should a restrictive covenant be challenged.
Fiduciary duties
Some employees are considered to have fiduciary duties to their employer. This requires that the employee put the employer’s interests ahead of his own. Employees who owe such duties may be restricted in their business activities for a “reasonable” period of time following the termination of employment.
Because of the onerous nature and uncertain scope of such obligations, the courts will only impose them in the clearest of cases, when it is both fair and necessary to do so. Examples may include senior managers who are key to the business. Given the relative uncertainty in this area of the law, employers are generally advised to confirm and outline any fiduciary duties in a written employment contract.
Departure protocols
Employers are well advised to establish a departure protocol. Employees should be reminded of their continuing duty of confidence and any other contractual terms that would restrict their post-employment activity. A process for the collection and review of company property is critical.
It is good practice to also perform a review of recent IT resource access for evidence of unusual activity. Company hardware used by the departed employee should sometimes be kept out of service for a period of time in case professional forensic analysis is required.
An ounce of prevention
Employers should continually assess the risks associated with potential employee departures and consider what strategies might be appropriate to protect against the risks.
While several legal options are described here, employers doing business in Canada may also want to implement human resources measures such as employee retention initiatives and using client teams as a means of reducing the negative impact of departures. Employers will likely find that a combination of customized risk management strategies is well worth the effort.
