Confidentiality agreements not non-compete agreements

Former employees who signed confidentiality agreements could still work for competitor: Court

Three former employees who signed confidentiality and non-solicitation agreements with an Alberta company are free to work for a competitor, the Alberta Court of Appeal has ruled.

Artie Kos worked for KOS Oilfield Transportation, a mover of oilfield equipment and rigs based in Drayton Valley, Alta. Kos originally owned shares in the company before selling them to KOS’ parent company on Jan. 1, 2006. As part of the share purchase agreement, Kos signed a four-year non-compete, non-solicitation agreement.

In April 2010, less than four months after the non-compete agreement expired, Kos started up ATK Oilfield Transportation, which was in the same business as KOS. As part of the startup, ATK hired two KOS employees, Dion Lees and Astrid Mitchell, and one former employee, Steve Bradley.

Bradley had worked with KOS since 1998 and had signed an employee confidentiality and non-disclosure agreement in 2004, in which he agreed not to reveal confidential information about KOS during or after his employment with the company. The agreement also prohibited Bradley from soliciting KOS customers for a similar business. He left KOS in 2006.

Lees was an operations manager and Mitchell an administrative assistant for KOS and they had been with the company since 1998 and 2000, respectively. Each of them also signed a confidentiality and non-disclosure agreement in 2004 with the same terms as Bradley’s.

KOS sued the three former employees for breach of the agreements they signed and sought an injunction against them that would prevent them from working with ATK or competing against KOS and ordering the return of any confidential information and disclosure of any contact made with existing and former KOS customers, until the case was decided. KOS argued they were key management staff that ATK targeted because of their access to its confidential information.

KOS said Lees gave information about the KOS fleet of trucks to ATK and had emails between Bradley and Lees about it while Lees was still with KOS. KOS also accused Mitchell of trying to solicit the business of a “substantial” KOS customer after she joined ATK.

The Alberta Court of Queen’s Bench found the three were key employees and owed fiduciary duties to KOS and the company could sustain irreparable harm if they breached their confidentiality and non-solicitation agreements. The court granted the interim injunction until the legal matter of the agreements could be determined.

The Alberta Court of Appeal overturned parts of the injunction, finding none of the three employees had signed non-competition agreements. And, since the confidentiality and non-competition agreements were unlimited in terms of time and geographical area, it was unlikely they would stand up in court.

The appeal court found Mitchell was not in a management position with KOS and didn’t owe any fiduciary duties to the company. This, along with the absence of a non-compete agreement, meant there was no reason she couldn’t work for ATK, said the court.

The appeal court also found there was no basis to prevent Bradley and Lee from continuing to work with ATK, since they also had no non-compete agreements. However, it found they engaged in misconduct by collaborating and sharing confidential information while Lee was still with KOS. The court upheld the injunction against disclosing or using confidential information against them. See Kos Oilfield Transportation Ltd. v. Kos, 2010 CarswellAlta 1846 (Alta. C.A.).

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