By Jaclyn McNamara and Marisa Victor
Your employees have access to all kinds of sensitive company information. But what can you do if they leave and use that information to unfairly compete against your company?
An Ontario court, in Corona Packaging Inc. v Singh, recently confirmed that you might be able to prevent that competition by obtaining an injunction. This decision reinforces why such clauses are a good idea and how they can prevent a company from losing key business.
Facts
Corona Packaging manufactures plastic bottles and has one major customer, Guest Supply Inc. After a chance encounter at a conference, the president of Corona Packaging, Keith Ratcliff, became concerned that two former employees, Bradley Cascioli and Kashmir Singh, were intending to compete for Guest Supply’s contracts. The two former employees had signed comprehensive employment agreements including both a confidentiality clause and a noncompetition clause.
Cascioli was presenting himself as the president of sales and manufacturing for Aura Packaging and had apparently purchased the same machines Corona Packaging uses in its production of bottles.
Ratcliff, concerned confidential data had been stolen, launched an internal investigation. It revealed that the day before Singh left, he had used his work computer to transfer 8,465 files onto a portable device. These files contained important confidential information including work orders that listed every product produced by Corona Packaging with technical specifications, budget information, price lists, packaging and product quality testing information, and workplace policies.
Ratcliff responded with a claim for injunctive relief against Singh, Cascioli, and Aura Packaging to prevent them from competing against Corona Packaging.
Test for injunctive relief
Injunctive relief is an emergency measure that can be granted by a court before hearing the case. An injunction attempts to preserve the status quo until a final decision in the case can be made. When deciding whether an injunction is necessary, the court must be satisfied that each step of the following three-part test is met:
- Is there a serious issue to be tried?
- Will the party requesting the injunction, here Corona Packaging, suffer irreparable harm prior to the hearing of the case if the injunction is not granted?
- Will the party requesting the injunction be more inconvenienced than the others if the decision is not in its favor?
Decision
The case passed the first stage of the test because the case itself was not frivolous or vexatious.
At the second stage, the court found that the theft and subsequent use of confidential information would likely cause permanent market loss and serious damage to Corona Packaging’s business. This constitutes irreparable harm as it can’t be compensated for with money.
At the third stage, Aura Packaging argued that it was halfway through an order from Guess Supply for a million shampoo bottles and that it would go bankrupt if unable to finish the order. But the court found the balance of convenience favored Corona Packaging because Aura Packaging would never have been able to enter into the contract in the first place without the use of the confidential information.
Therefore, the court granted the injunction preventing Aura from using the confidential information and competing against Corona until the case is heard.
Takeaway for employers
Employers should include both a confidentiality and, where a nonsolicitation clause isn’t sufficient, noncompetition clause in their employee contracts in order to protect their business interests.
This case shows how important those clauses can be in protecting the viability of a company until trial and possibly thereafter. However, noncompetition clauses must be carefully and specifically crafted because a Canadian court won’t accept one that tries to unreasonably prevent competition or one where a nonsolicitation clause would be sufficient.