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Can You and Your Employees Keep a Secret?

Public and private organizations in Canada have rights to protect insider information and trade secrets from not only spies from the outside, but also from current and former employees who wish to take this expertise with them when they leave. These rights are enshrined in legislation, but given the level of competitiveness both in Canada and globally, there are many other steps that an organization can take to protect its internal and unique information.

Brian W. Pascal
Any employee who wishes to leave a particular company also has rights. These include the basic right to earn a living within the industry and profession in which they have invested their time and energy. However, they also have obligations that are sometimes described as good faith, fidelity and loyalty. For key and senior employees, they also have fiduciary responsibilities that are directly related to their position in an organization.

So how do these rights and responsibilities get balanced out? The jury is still out in Canada and new case law is being written on what seems like a monthly basis. But the reality on the ground is that employers must take proactive steps before an employee leaves their company in order to protect their business and trade secrets.

First of all it's important to know what is or isnít a legitimate trade secret. According to the Uniform Trade Secrets Act of 1989, a trade secret means any information that: is, or may be used in a trade or business, is not generally known in that trade or business, has economic value because it is not generally known, and is the subject of efforts that are reasonable under the circumstances to prevent it from being generally known.

This would seem to rule out things like regular production and shipping schedules or the manufacture of commonly made goods or products. It would include special formulas or manufacturing processes that make a product unique and different from the competition. One good example of a trade secret might be Colonel Sander's secret herbs and spices recipe for KFC fried chicken.

If a company has such a trade secret as defined above and is actively working to keep this information from being generally known, it has every right to protect itself from any employee or former employee who wants to use this inside knowledge to help another company, particularly a competitor, and their own career after they leave the enterprise. The first step for the company is to limit access to these trade secrets to only the employees who absolutely need to know. This will at least lower the number of possible defectors who have the capacity to trade on the employer's secret information.

The second most important step in protecting the company is to develop restrictive and confidentiality covenants or agreements for key employees to sign before they have access to the organization's trade secrets. These covenants have proven to be successful in assisting companies to restrict the activities of current and former employees when it comes to maintaining confidentiality and trade secrets. Keep in mind that they cannot be so restrictive as to prevent an individual from making a living in their chosen profession. In addition, these covenants need to be reasonable and seen to be reasonable by the law and the courts in terms of scope of activities covered and the time period for which certain restrictions may apply. Finally, the employer needs to be as specific as possible in describing the risks to the company and the reasons why it is required in order to stand up later if challenged in the courts.

In addition to the protection offered to employers through restrictive covenants and the Uniform Trade Secrets Act, there is also protection and damages that an employer can seek from common law in Canada. These might include breach of contract, breach of confidence, breach of fiduciary duty, unjust enrichments and wrongful interference with the contractual relations of others. These are all highly complex and detailed areas of common law, but the Supreme Court of Canada has ruled that these mechanisms are valid for use by a trade secret holder if they feel that they have been damaged by a former employee.

As companies and organizations in Canada continue to make scientific and technological breakthroughs in all areas of the economy and industry, an organization who does not protect its trade secret assets could be leaving itself wide open to loss of valuable and critical information. When it comes to protecting trade secrets, the old Boy Scouts motto "Be Prepared" never seemed more appropriate.


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