The doctrine of "inevitable disclosure" is based on
the proposition that an employee who performs the same or similar
work for a direct competitor of a former employer, will inevitably
use or disclose confidential information and trade secrets in the
course of performing his/her duties for the new employer. Although
this doctrine has been accepted in several U.S. cases such as
PepsiCo, Inc. v. Redmond, 54 F. 3d 1262 (7th Cir. 1995)
(PepsiCo), it has not received similar treatment in the
common law courts in Canada.
In PepsiCo, the Court allowed an injunction preventing
a PepsiCo general sales manager from assuming similar duties with
PepsiCo's chief competitor. The sales manager had detailed
knowledge of PepsiCo's marketing plans for the coming year and
was set to be involved in marketing decisions at his new employer.
PepsiCo did not contend that any trade secrets were actually
stolen, but rather asserted that in his new role the
misappropriation of PepsiCo's confidential information would be
inevitable as the employee would be able to anticipate
PepsiCo's strategies and would not be able to block out that
information when making decisions for his new employer.
In contrast, the doctrine of inevitable disclosure was rejected
by Canadian courts in ATI Technologies Inc. v. Henry
 O.J. No. 4596 and Future Shop v. Northwest-Atlantic
(B.C.) Broker Inc.  B.C.J. No. 2659 (Future
Shop). In Future Shop the Court stated that the
application of this doctrine would require a significant change in
the tests applicable in Canada.
Recently, in Longyear Canada, ULC v. 897173 Ontario Inc.,
2007 CarswellOnt 7958 (Longyear) the Ontario Superior
Court of Justice again refused to apply the doctrine of inevitable
disclosure. In this case, the plaintiff, Boart Longyear Inc.
(Boart) was a provider of products and services in the mining
exploration field. J.N. Precise (JNP) had entered into an agreement
to sell substantially all of its assets to one of Boart's
competitors, Sandvik Mining and Construction Canada Inc. (Sandvik).
Pursuant to the transaction, most of the employees of JNP were to
transfer to Sandvik, including three employees who had previously
worked for Boart (collectively the "Former
Boart sought an injunction to restrain the sale, along with an
injunction to restrain the Former Employees from disclosing
Boart's trade secrets and confidential information to Sandvik,
which the Former Employees had acquired while employed by Boart. In
its arguments Boart claimed that if the Former Employees were
allowed to work for Sandvik it would result in the inevitable
disclosure of Boart's proprietary information. The Court
rejected this argument, citing Future Shop, and stated
that it was "not satisfied that the doctrine of
'inevitable disclosure' put forth by Boart based on U.S.
authorities is the applicable law in Canada."
The Court's recent rejection of the inevitable disclosure
doctrine in Longyear highlights the importance of
analyzing the enforceability of non-competition agreements. Given
the conflicting approaches taken by the Canadian and U.S. courts,
this will be especially important for U.S. employers with employees
in Canada. Generally, in Canada a non-competition agreement will
only be enforceable if it is (i) reasonable in duration and
geographic scope; (ii) protects a legitimate proprietary interest;
(iii) does not prohibit competition in general; and (iv) is not
contrary to the public interest. This reinforces the recent
jurisprudence that supports that courts prefer a proper non-solicit
over a non-competition agreement.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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