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If you have trade secrets, lock them up in contracts Add to ...

In my last column, I discussed a serious breach of confidentiality by one of J.K Rowling’s lawyers, who disclosed to a friend that the author had written a new crime novel under a pseudonym. The lawyer was under a professional obligation of confidentiality, and he breached it by disclosing the secret, which was promptly posted on Twitter for the world to see.

It was a reputation management disaster for the lawyer and the law firm, but it was also a good reminder about the importance of keeping a client's information confidential.

Secrecy and the protection of confidential information is fundamentally important in the business world. Trade secrets are key assets, which is why employment contracts, independent contractor agreements, partnership agreements, franchise agreements and a host of other contracts will always contain provisions to bind one or both parties to keep information strictly confidential. And the party in receipt of the confidential information will be bound to not utilize it in any competing business or to disclose it to a new employer.

For an entrepreneur, there may be technical processes or operational aspects to the business that add to its value or make it more profitable. The owners don't want that information to be passed on to competitors. A good example might be customer lists, supplier lists, and contractual terms that would give a competitor an unearned advantage.

If you're an employer with confidential information you want protected, you'll need to make sure there are covenants of confidentiality in written employment agreements and engagement agreements you have with your employees and contractors.

And if you're an employer hiring a new worker from a competing business, you'll want to be very careful that the new employee does not disclose the former employer’s confidential trade secrets to you. It's possible you could be brought into a legal action in respect of the employee’s unlawful disclosure of that information. A lawyer with experience in employment law will be able to prepare standardized agreements for you to use that can help protect you.

Those employment agreements should also contain or otherwise incorporate your company’s social media policies, which outline acceptable or unacceptable conduct by employees on these networks. There is ample case law in Canada that allows for termination for cause of employees who disclose confidential information, disparage other employees, disparage managers, and "trash talk" employers on social media, even through the use of a pseudonym.

If parties are in a legal dispute and that dispute is settled, the terms would be something that at least one of the parties would want to keep strictly confidential. Terms of settlement might involve the payment of money or other provisions that a party doesn't want its competitors to know about. In an employment context, employers don’t want other employees in the business (or the industry) to know what is paid to departing workers.

A useful example of confidentiality covenants in action involves an arbitration brought by The Globe and Mail against former columnist Jan Wong, who was under a covenant of confidentiality pursuant to terms of a settlement agreement reached between her and The Globe as a result of her departure from the organization.

Ms. Wong wrote an autobiography in 2012, which revealed elements of her settlement, including the fact that monies had been paid. The operative clause of her contract read, in part: “the parties agree not to disclose the terms of this settlement, including Appendix A to anyone other than their legal or financial advisors…”

The arbitrator found four distinct breaches of Ms. Wong's confidentiality covenant in Ms. Wong’s autobiography:

  • “I can't disclose the amount of money I received.”
  • “I'd just been paid a pile of money to go away.”
  • “Two weeks later a big fat check landed in my account.”
  • And "even with a vastly swollen bank account…”

The arbitrator, finding Ms. Wong breached her confidentiality covenant, ordered her to repay all the money she received under the settlement agreement, which The Globe has said it will donate to charity.

Although this case is under appeal, it illustrates that if employees are contractually bound to keep settlement payments confidential, they risk losing all monies paid if they breach those obligations.

It should also reinforce this point to anyone in business: confidentiality agreements are worth the paper they’re written on.

Tony Wilson is a franchising, licensing and intellectual property lawyer at Boughton Law Corp. in Vancouver, he is an adjunct professor at Simon Fraser University (SFU), and he is the author of two books: Manage Your Online Reputation, and Buying a Franchise in Canada. His opinions do not reflect those of the Law Society of British Columbia, SFU or any other organization.

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