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Your employees have access to all kinds of sensitive company
information. But what can you do if they leave and use that
information to unfairly compete against your company? An
Ontario court, in Corona Packaging Inc. v Singh, has
recently confirmed that you might be able to prevent that
competition, by obtaining an injunction. This decision
reinforces why such clauses are a good idea and how they can
prevent a company from losing key business.
Facts
Corona Packaging manufactures plastic bottles and has one major
customer, Guest Supply Inc. After a chance encounter at a
conference, the President of Corona Packaging, Keith Ratcliff,
became concerned that two former employees, Bradley Cascioli and
Kashmir Singh, were intending to compete for Guest Supply's
contracts. The two former employees had signed comprehensive
employment agreements including both a confidentiality clause and a
non-competition clause.
Cascioli was presenting himself as the President of Sales and
Manufacturing for "Aura Packaging", and had apparently
purchased the same machines Corona Packaging uses in their
production of bottles.
Ratcliff, concerned confidential data had been stolen, launched
an internal investigation. It revealed that the day before
Singh left, he had used his work computer to transfer 8,465 files
onto a portable device. These files contained important
confidential information including work orders that listed every
product produced by Corona Packaging with technical specifications,
budget information, price lists, packaging and product quality
testing information, and work place policies.
Ratcliff responded with a claim for injunctive relief against
Singh, Cascioli and Aura Packaging - to prevent them from competing
against Corona Packaging.
The Test for a Injunctive Relief
Injunctive relief is an emergency measure which can be granted
by a court prior to the hearing of the actual case. An injunction
attempts to preserve the status quo until a final decision in the
case can be made. When deciding whether an injunction is necessary,
the Court must be satisfied that each step of the following
three-part test is met:
Is there a serious issue to be tried?
Will the party requesting the injunction, here Corona
Packaging, suffer irreparable harm prior to the hearing of the case
if the injunction is not granted?
Will the party requesting the injunction be more inconvenienced
than the others if the decision is not in their favour?
The Decision
The case passed the first stage of the test because the case
itself was not frivolous or vexatious.
At the second stage, the Court found that the theft and
subsequent use of confidential information would likely cause
permanent market loss and serious damage to Corona Packaging's
business. This constitutes irreparable harm as it cannot be
compensated for with money.
At the third stage, Aura Packaging argued that it was half-way
through an order from Guest Supply for a million shampoo bottles
and that it would go bankrupt if unable to finish the order. But
the Court found the balance of convenience favoured Corona
Packaging because Aura Packaging would never have been able to
enter into the contract in the first place without the use of the
confidential information.
Therefore, the Court granted the injunction preventing Aura from
using the confidential information and competing against Corona
until the case is heard.
Take-Away For Employers
Employers should include both a confidentiality and, where a
non-solicitation clause is not sufficient, non-competition clause
in their employee contracts in order to protect their business
interests. This case shows how important those clauses can be in
protecting the viability of a company until trial, and possibly
thereafter. However, non-competition clauses must be carefully and
specifically crafted as a Canadian court won't accept one that
tries to unreasonably prevent competition or one when a
non-solicitation clause would be sufficient.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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