Loopstra Nixon Clients Successful in Defending Breach of Confidence Injunction
In a decision released September 15, 2023, the Ontario Superior Court of Justice found in favour of Loopstra Nixon’s clients and dismissed a Plaintiff’s request for urgent and extraordinary injunctive relief.
Loopstra Nixon represented two of the Plaintiff’s former employees and their current employer, who were alleged to have used the Plaintiff’s confidential business information to unfairly compete with the Plaintiff. The employees – one a Sales Director and the other a Sales Manager - left their employment with the Plaintiff in April and September 2022, respectively, to join the Defendant. The Plaintiff formed the belief that the Defendants had misused confidential information to unfairly compete with it, primarily on the basis that the departed employees had, from time to time during their employment, forwarded company emails to personal email addresses. The Plaintiff formed the view that this was a breach of confidence and advanced a claim that the employees had shared those documents with their new employer and used the information to compete. The Defendants’ evidence was that the documents were used while working for the Plaintiff, and not shared with or used to benefit the new employer.
Almost a year after the first employee’s departure, the Plaintiff brought an urgent motion seeking an order to bar the former employees from working in any capacity for its new employer and to enforce other restrictive covenants until trial. It also sought the delivery of various email addresses, usernames, passwords, and electronic devices based on an alleged misuse of confidential information. The Plaintiff further sought a court-appointed independent inspector and a sealing order.
The Court dismissed their motion for injunctive relief in its entirety.
Key Takeaways from the Endorsement
While the decision is notable for the clarity with which the Court addressed a number of legal issues, we wish to highlight three key takeaways as the most noteworthy:
- Caution is Recommended when Considering Fiduciary Duties of Employees
Employers should be wary of alleging that employees owe a fiduciary duty if it is unclear from the nature of the relationship and the specific circumstances, including the employee’s scope of authority. The court noted that the existence of a fiduciary duty should not be presumed for non-executive employees and clear evidence is needed to establish that a fiduciary duty is owed. The Court also affirmed that, even if there is a fiduciary duty owed, “[m]eeting with a future employer that is [sic] a competitor is not, on its own, a breach of fiduciary duties.”
- Breach of Confidence Requires Demonstrating Actual Harm
Evidence of misuse of confidential information is necessary to enforce extraordinary injunctive relief. Here, although the employees forwarded work e-mails during the course of their former employment, the court noted at several points that the Plaintiff’s evidence of misuse or use for improper purpose was thin or non-existent. Moreover, the Court held that he “doubt[s]” the Plaintiff suffered harm from the employees’ actions, particularly since the Plaintiff failed to lead sufficient evidence of harm despite the motion being heard “a significant amount of time” after the employees had left.
- The Court Strongly Affirms the Open Court Principle
Make no mistake: a sealing order is an extraordinary remedy. Business owners should not assume the Court will grant a sealing order to prevent disclosure of confidential business records unless there is an important public interest to protect. Information that falls short of being trade secrets is not in and of itself sufficient to derogate from the Open Court Principle.