New angle in non-compete?

American legal doctrine raised in battle over employees

You may have all the contracts in place to protect the organization’s trade secrets, but what if your manager of product development is himself the biggest trade secret of all?

And what if he’s defecting to a competitor? Wouldn’t you feel safer if the law lets you presume that he’ll make use of your confidential information whether he intends to or not?

Such a legal doctrine exists in the United States, and it has been brought up in a lawsuit between two computer-game giants over five employees in Montreal. Called the “inevitable disclosure doctrine,” this legal argument has garnered much debate in the U.S. because it reverses the burden of proof and presumes an employee will disclose confidential and proprietary information belonging to a former employer.

The doctrine refers to a theory that “when an employee with access to key information takes a position with a competitor and works in a similar job function, that job will inevitably lead the person to rely on trade secrets belonging to the former employer,” explained Patrick Benaroche, a lawyer at Stikeman Elliott, who’s not involved in the case.

“To our knowledge, this theory is not frequently invoked in Canada. That it has been taken up by a judge in this case is very interesting.”

At the heart of the lawsuit are five former employees at Ubi Soft, a French video-game maker employing 600 people at its Montreal office. The five game creators held a range of positions including artistic, programming and game design, and worked on the highly successful computer game, Splinter Cell.

Within three weeks in July, the five defendants left Ubi Soft to join Electronic Arts, “which subsequently announced that it was opening its offices here in Montreal,” said Ubi Soft spokesperson Martin Carrier. “And the announcement was made two weeks after the last one had left, so there’s a clear cause and effect here as far as we’re concerned.”

Four of the five had signed non-disclosure and non-compete clauses in their employment contracts with Ubi Soft. In the non-compete clause, they agreed not to work for a competitor in North America for a one-year period.

The reasonableness of these restrictive covenants will be determined in hearings early next year. Three court rulings in recent months have dealt with whether a provisional injunction should be granted to bar the employees from working at Electronic Arts in the interim.

The “inevitable disclosure doctrine” came up in a written decision issued by the first Superior Court judge as he granted the injunction (upheld upon appeal last month). As one of many reasons given for issuing the injunction, Judge André Wery said, “… it appears, at this point, difficult to see how the ex-employees of Ubi Soft could work in the development of interactive video games for Electronic Arts without making use, one way or another, of confidential information acquired while in the employ at Ubi Soft.”

Thierry Carrière, an employment lawyer at the Montreal office of Gowlings Lafleur Henderson, said in making such an argument, Justice Wery shows he is already convinced that the ex-employees are going to make use of confidential information.

It’s this presumption that makes the doctrine so controversial in the United States. As interpreted by U.S. courts, the doctrine does not require evidence that an ex-employee intends to, or even threatens to, make use of an ex-employer’s trade secrets.

Further, the doctrine has been upheld even in cases where a non-competition clause has not been signed, earning it the label, “after-the-fact covenant.”

Because of this retroactive rewriting of the employment relationship, courts in a number of states have rejected this doctrine.

Carrière noted the doctrine came up only as a “mere reference” in Judge Wery’s decision, so it remains doubtful whether the judge intended to bring a new doctrine into Quebec law.

He doesn’t think the doctrine will make great headway in Quebec jurisprudence, because courts are reluctant to adopt new doctrines that are not necessary.

“If you can achieve the same results with current law, you shouldn’t resort to other doctrines that may take on their own life,” said Carrière. “And this doctrine can be dangerous, because it could reverse the onus of proof on employees.”

Quebec’s civil code already contains provisions, particularly article 2088, barring employees from disclosing confidential information, said Carrière. Under this provision, it’s the employer’s burden to provide evidence showing the employee is using confidential information.

Labour and employment lawyer Charles Hurdon said a number of lawyers have tried, unsuccessfully, to invoke the doctrine in Canada. At common law, departing employees’ obligations already stop former workers from such things as taking with them confidential or proprietary material and using price lists and clients lists of their former employers.

“But common law may not prevent you from using what you have learned during your previous employment. And so, using general know-how or business practices may be permitted even if you are developing a competing product. Employees are prevented from using something proprietary, such as source code. And someone can say, ‘Make sure the employee doesn’t take with them any code.’ But it’s not always that simple, because employees sometimes have in their head the proprietary information,” said Hurdon from the Ogilvy Renault office in Ottawa.

Employers can try to protect themselves with covenants. If something is proprietary, then the hard part isn’t putting in place an agreement to protect yourself, Hurdon added.

“It’s in proving the breach. People are saying, ‘These guys can be selling our code in China and we wouldn’t know it.’ And that’s why the inevitable disclosure doctrine is something lawyers are trying to seize on.”

For more on restrictive covenants, see the related articles link below.

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