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 [2000] O.J. No. 4596 and Future Shop v. Northwest-Atlantic (B.C.) Broker Inc. [2000] 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 Employees").
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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