Can customer information be protected in a confidentiality agreement?

Determining what information can be protected and what a former employee can use with another employer

Brian Johnston
Question: An employee recently left our company to work for a direct competitor. When we hired him, he signed an agreement not to use confidential information about our company if he moved on, but we’re worried he could use information learned about our customers to solicit business for his new employer. Does this type of information qualify as confidential that we can prevent him from using?

Answer: The issue of what type of information an employee can use after leaving employment is a matter of some debate. The answer varies from business to business and depends on the particular circumstances of the case.

Two recent cases addressed the issue; one concluded that non-fiduciary employees could use confidential information in subsequent employment; the other adopted a rather narrow definition of confidential information but restricted the use of such confidential information.

RBC Dominion Securities Inc. v. Merrill Lynch Canada involved a number of investment advisors and employees who left RBC to work with Merrill Lynch, all at the same time. The employees had not previously signed confidentiality, non-competition or non-solicitation agreements. The advisors took client records, documents and files to Merrill Lynch which were subsequently returned to RBC.

The majority of the British Columbia Court of Appeal held that there is no implied obligation for a non-fiduciary employee to not compete “unfairly” with their former employer. The court found that given the relationship between the investment advisor and the client and the important interest of the client at stake, an advisor should be able to prepare a list of clients including addresses, telephone numbers and contact information without fear of litigation. The court added this did not extend to account statements, documents, or information such as the client’s social insurance number.

The New Brunswick Court of Appeal also considered an employee’s right to use confidential information after leaving their employment for a competitor in Imperial Sheet Metal Ltd. v. Gray Products Inc. The concern was that a former vice-president of sales and marketing was using confidential pricing information to underbid the former employer on sales contracts with the same customers.

The court ruled an employee’s duty to not disclose trade secrets and other confidential information continues when the employment relationship ends. However, it adopted a narrow definition of confidential information. General skills and knowledge acquired by the employee while working for the former employer, provided the skill and knowledge is committed to memory and not dependent on documentation, was not confidential information. According to the court, the right to compete includes the right to solicit customers of the former employer whose names and addresses the departed employee has learned during his service, provided the former employee is not making use of printed information compiled by the former employer, such as a customer list.

The court rejected a broad definition of confidential information which would include knowledge of the special needs and requirements of each customer that had been set out in A.R. Thompson Ltd. v. Stalk and followed in Sanford Evans List Brokerage v. Trauzzi. It rejected that knowledge of a customer’s needs and preferences and the names of contact persons was confidential information.

Therefore, there are restrictions on the type of information an employee can use when going to work for a competitor. The scope of that restriction will depend on several factors including the definition of “confidential information” in any written agreement, the nature of the business, the information in question and future court decisions, including RBC’s appeal.

For more information see:

RBC Dominion Securities Inc. v. Merrill Lynch Canada, 2007 CarswellBC 46 (B.C. C.A.).
Imperial Sheet Metal Ltd. v. Landry, 2007 CarswellNB 298 (N.B. Q.B.).
A.R. Thomson Ltd. v. Stock, 1994 CarswellBC 3116 (B.C. S.C.).
Sanford Evans List Brokerage v. Trauzzi, 2000 CarswellOnt 1338 (Ont. S.C.J.).

Brian Johnston is a partner with Stewart McKelvey Stirling Scales in Halifax. He can be reached at (902) 420-3374 or bjohnston@smss.com.

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