In a recent decision from the Alberta Court of Queen’s Bench, the judge considered the rights of an employer to claim compensation for an employee who had allegedly stolen a business idea. The facts of the case are not unique; indeed, they arise frequently in the give-and-take between employer and employee. In this case, an employee operated a mobile water-heating unit that had been significantly and beneficially improved by the plaintiff employer. After two years of employment, the defendant left the plaintiff’s employ and, two years after leaving, developed a similar mobile water-heating system in competition with that of the plaintiff. The former employer sued for damages. While the defendant was not an officer or a director of the company, the plaintiff argued that he had both a fiduciary duty and an equitable duty of confidence to his employer.
Based on a number of precedents, including the Supreme Court of Canada decision in Lac Minerals v. International Corona Resources Ltd., the Court of Queen’s Bench found that an employee, absent an employment agreement or a fiduciary obligation, may still have a duty of confidence to his employer. In order to establish a breach of that duty, the employer must prove that:
- The information has the quality of confidence;
- It was given to the employee in circumstances which gave rise to an obligation of confidence; and
- There was unauthorized use of the information.
In the Lac Minerals decision, the Supreme Court held that “in establishing a breach of duty of confidence, the relevant question to be asked is, what is the confidee entitled to do with the information, and not to what use he is prohibited from putting it.” The Queen’s Bench judge also referred to the qualification in Lac Minerals that using confidential information as a “springboard” to a business opportunity will be an improper use of that information.
In applying the principles of Lac Minerals to the case before it, the Court of Queen’s Bench found that the employee clearly used confidential information as to the design and function of his former employer’s boiler unit in creating his own hot water truck. The Court found that the defendant could not have built this equipment without the information that he obtained during the course of his employment with the plaintiff.
The Court relied on the “reasonable man test” as pronounced in Lac Minerals in assessing whether the information used by the defendant had been imparted to him in a manner which imposed an obligation of confidence. The Court imposed a reasonable man test to assess whether or not it was the intention of the employer to keep the details of the construction of this unit confidential. The Court felt that the employer intended confidentiality.
Having found that the defendant breached his duty of confidence to his employer, the Court went on to consider what remedy the plaintiff was entitled to. The plaintiff had been seeking an order restraining the defendant employee from disclosing any information or trade secrets regarding the equipment to any third party. The plaintiff had also asked for an accounting of any profits derived from the use of the trade secrets, both from the former employee and the company for which he now worked.
The Court made the order prohibiting disclosure but then struggled with the question of monetary loss. The Court found that there was “scant evidence” brought to trial as to the actual losses suffered by the plaintiff. In looking at the income derived by the defendant corporation, the Court found that the defendant had earned $160,000 in gross profits in the year following the alleged misappropriation. While the Court did point out that the plaintiff has the onus of providing credible evidence to prove its damages, the Court was not prepared to allow the defendant to escape without penalty in the case of a clear misappropriation of confidential information. Therefore, the Court imputed income to the defendant of $80,000 and fixed the damages to the plaintiff in that amount.
The case highlights the inclination of our courts to massage the facts as necessary in order to fashion a just result to a party that has clearly been wronged. While it is always preferable to bind employees to contractual duties of confidence and good faith, employers who do not have such policies can take some comfort in this decision.
Garfinkle Biderman LLP
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