Canadian Underwriter

How far can employee confidentiality agreements go?

May 13, 2019   by Jason Contant

Print this page Share

If you leave your brokerage with some confidential information stored to memory as opposed to a physical document, can you use that information?

A recent ruling from the Ontario Superior Court of Justice found that even committing to memory confidential information is equivalent taking a physical list.

“With respect of confidential information, it does not make a difference if a departing employee has information that allows him to correspond with and solicit to former clients, to the extent that he is doing so from memory,” wrote Justice Andrew Goodman of the Ontario Superior Court of Justice. “Committing to memory or on his computer, the names of clients, their contacts, the clients’ needs or preferences and the rates that the clients were willing to pay, is confidential information and exploiting such information to solicit former clients is ‘tantamount to the physical asportation of a client list’ and its use is prohibited.”

The issue of confidentiality agreements and non-solicitation clauses came to light in the recent case of Stress-Crete Limited v. Harriman, released May 6. Stephen Harriman was an employee of Stress-Crete Limited and King Luminaire Company, Inc., an industrial lighting company headquartered in Burlington, Ont. At issue was whether he breached his non-competition, non-solicitation and confidentiality obligations under his employment agreement. Harriman, sales manager of U.S. northeast and Canada, resigned in October 2018 and accepted a sales employment offer with Cyclone Lighting, a direct competitor of Stress-Crete.

Part of the Employee Confidentiality and Non-Competition Agreement he signed was as follows:

Upon termination of my employment for any reason, I shall immediately return to Stress-Crete all customer lists, notes, records, files, communications and memory equipment, tapes, drawings and copies in my possession or control, which contain or refer to the confidential information.

Harriman contended that he never misused any confidential information, that he only ever accessed the U.S. price book and that even in his capacity as sales manager, he never quoted or used the Canadian price book. But Justice Goodman disagreed.

“I am satisfied that Harriman knew who the relevant clients were in both Canada and the United States, had their contact information, was aware of the products they had purchased and had knowledge of the costs of products… including pricing,” Justice Goodman wrote. “To explain or justify his conduct by claiming that he only had dealt with U.S. clients and selectively chose to ignore emails or sensitive information or otherwise disregard any reference to Canadian clients or related sales is not believable.”

Justice Goodman found that the non-solicitation and confidentiality provisions in the employment agreement were reasonable and not ambiguous, and do not curtail Harriman’s “right or ability to carry on a livelihood or business as insurance broker” or in sales in general. “Furthermore, the evidence raised by Stress-Crete, including the emails and other statements made by [Harriman], clearly and objectively show an intention to solicit business,” the decision said. “The use of confidential information to facilitate solicitation is a breach in and of itself.”

Harriman admitted to having received confidential sales reports with data as it relates to Ontario sales for Stress-Crete. He also said he had access to Stress-Crete’s internal server, both Canadian and American price lists, quotes, sales reports and customer lists. As well, prior to his resignation and in anticipation of litigation, Harriman created a separate file on his home computer that consisted of information and documentation owned by his former employer.

Justice Goodman prohibited the former employee from “soliciting or contracting any Stress-Crete employee, person, firm, business, corporation or governmental agency who was a customer of Stress-Crete at any time during his employment with Stress-Crete.” Such a restriction was to continue for a period of two years from the date of his resignation and encompass a region within 750 miles of Burlington.

Harriman was also prohibited from using or disclosing “any confidential or proprietary information, customer lists, suppliers, pricing, production methods or trade secrets” and ordered to return “all of Stress-Crete’s information or other confidential or private records or documents in whatever format, forthwith.”