Unfair competition/trade secrets

Canada: Circumventing the Disdain for Non-Competes

By John Kloosterman and Nima Rahimi

The Ontario Superior Court of Justice recently upheld a contract requiring a senior executive to provide six months' prior notice before resignation. The court agreed with the employer that the senior executive could not move to a competitor during the notice period, effectively prohibiting him from competing during a contractual notice period.

During and around the time of the executive's promotion, the Company went through some changes, including management changes. In discussions with the new CEO, the executive learned that the future of his role would be ultimately narrower than originally contemplated. Unhappy with this, the executive decided to move to a competitor and provided the Company with two months' notice. The Company took the position that the executive was obligated to provide the six months' notice and could not move until that period had ended.

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Australian Supreme Court Decision Holds Important Lesson for Companies with Australian Operations Regarding Use of Post-Employment Restraints

By Naomi Sheridan

On December 20, 2013, in Pet Tech Pty Ltd v Batson [2013] NSWSC 1954, Justice Young of the New South Wales (NSW) Supreme Court ruled that businesses that want to enter into enforceable post-employment restraint agreements in Australia must ensure those agreements are written in accordance with Australian law.  The decision holds an important lesson for any company with Australian operations.    

Pet Tech Pty Ltd brought proceedings against one of its former sales agents attempting to prevent the employee from using or retaining information that the company considered to be confidential.  Post-employment restraints like this are not uncommon in Australia, particularly for executive, management and sales employees.  However, in this case, the court noted that it was required to interpret the enforceability of a "very strange" agreement because the document appeared to be an "American document which has been adopted to Australia unthinkingly."  Accordingly, Justice Young said that "whatever its effect under American law might be I have to deal with its effect in New South Wales."  As such, the court advised the company "to get some local lawyers to draft an actually enforceable contract" to cover employees in the future.   

Because the company had failed to have its employees sign agreements that were legally compliant with Australian law, the court determined that the relevant clause upon which the company sought to rely came "very close to being void."  The clause in question which stated, "[the employee has] the burden in any dispute of showing that information is not [the company's] confidential information," placed the onus of disproving that something is not confidential information onto the employee.  The court found this clause to be problematic because "it virtually means that whatever the [company] says must be accepted by the court unless the contrary is proven."

Another important point the court highlighted was the fact that the agreement purported to not only bind the plaintiff company but also "its parents, subsidiaries and affiliates" (including the company's related U.S. entity), which is not an uncommon provision contained in U.S. confidentiality agreements. The court said that "a contract with more than one part is either a joint contract, a joint and several contract or a several contract.  . . .  if there is no specification as to whether the contract is joint or otherwise it is taken to be a joint contract.  The contract accordingly must be construed as one with not only the plaintiff but also jointly with its parents, subsidiaries and affiliates.  Under rule 6.20 of the Uniform Civil Procedure Rules 2005 all these people must be plaintiffs before the contract can be enforced."

As such, the use of broad post-employment restraint documents in Australia which purport to extend coverage to a company and its related entities should be carefully drafted to clearly spell out the document's intention should a dispute arise. Alternatively, as this case appears to indicate, companies that engage in these types of disputes will need to include relevant related entities as parties to the dispute.   

Pet Tech Pty Ltd presents a number of important lessons for U.S. companies doing business in Australia, and reinforces that it is extremely important to ensure that a company's employees are subject to terms and conditions of employment that are compliant with applicable local laws. 

In Australia, significant consequences can result from a company's failure to have legally compliant contracts.  If a business has related companies and/or a number of employees working in Australia, employers should undertake a review of the language in its current contracts.  The law in Australia is complex when it comes to post-employment restraints, non-competes and the protection of confidential information, intellectual property and proprietary information.  Accordingly, businesses should not adopt a one-size-fits-all approach.  Unless contract terms are properly drafted, they are unlikely to be enforceable.    

The New Hungarian Labour Code Enters into Force

By Boglárka Kricskovics-Béli of CLV Partners (the Hungary member of Ius Laboris)

ChangesII.jpgThe new Hungarian Labour Code promises a fundamental overhaul of that country's labour law. Intended to improve competitiveness and increase employment in the face of the current economic crisis, the revised Labour Code introduces new forms of employment, and significantly changes employment rules from hiring to termination.

The new Code recognizes atypical or flexible forms of employment, and expressly allows employees to work for different employers in the same position simultaneously.

Different salaries may be paid to employees of the same employer who work in different regions.

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Non-compete Agreement Concluded After the Severance Notification But Before the Effective End of the Employment Contract: Indemnity Exempt from Social Security Contributions

It was generally admitted that a non-compete indemnity was exempt from social security contributions only if, among other things, the non-compete agreement was concluded after the effective end of the employment contract.

The Supreme Court nuances this principle in a judgment of 19 March 2012. In this case, two agreements were concluded on the same day between an employee and his employer: on the one hand, a transactional agreement on the termination of the employment contract (after the severance notice), and on the other hand, a non-compete agreement. Parties also agreed that the employment contract would effectively end only on the second day after the conclusion of those agreements. In addition, the employment contract did not contain a non-compete clause.

The Supreme Court decided that even if paid by virtue of an agreement concluded after the severance notification, but before the effective end of the employment contract, the non-compete indemnity is not necessarily awarded because of the termination of the employment contract: it does not therefore constitute remuneration subject to social security contributions.

This ruling reduces the importance of the exact moment of the conclusion of a non-compete agreement concluded within the framework of the termination of an employment contract. In order for a non-compete indemnity to be exempted from social security contributions, such an agreement should not necessarily be concluded after the effective end of the employment contract. Note that the exemption from social security contributions always requires that the non-compete indemnity does not constitute, in reality, a veiled indemnity in lieu of notice.

Note that this judgment does not concern the validity conditions of the non-compete clause.

Significant Decisions in Workplace Law in 2010

RecentDevelopmentsInWorkplaceLaw-October2010.jpg In the last year, Canadian courts have tackled a wide range of legal issues that are relevant to employers. To keep employers up to date on developments in the law, Heenan Blaikie's national labour and employment law practice has prepared a paper entitled "Recent Developments in Workplace Law" (pdf) which provides an overview of recent developments in employment, human rights, pensions, labour, workplace privacy, and occupational health and safety law.

Court Dismisses Employer's Claim for Breach of Fiduciary Duty against Former Employee

In Aquafor v. Whyte, Dainty and Calder, an Ontario court has held that fiduciary employees are entitled to secretly plan to set up a firm to compete against their employer, to take the employer's clients, and to immediately begin competing after resigning provided there is no improper solicitation of clients or misuse of confidential information.

In this case, two professional engineers who were the "face" of their former employer, planned the launch of their own engineering firm while still employed. During non-business hours, they secretly leased space, constructed leasehold improvements and prepared a business plan.  The engineers gave proper notice of their resignations and told some of their clients they were leaving. Following their resignation, the new firm immediately began competing by sending announcements through publicly available client lists and by accepting work from clients of the former employer. The employer sued alleging breach of fiduciary duty. The Court held that while active solicitation of clients before a "reasonable time" has passed is improper, covertly planning the departure while still employed, continuing to serve clients who choose to move, and immediately competing with a former employer are permissible provided there is no improper solicitation of clients and no confidential information has been misappropriated.

For more information on this case, please see Heenan Blakie's Labour and Employment in the News, "Jumping Ship: Ontario Court Dismisses Claim Against Former Employees".

Employment Newsnotes (Issue 49, Summer 2010)

newsnotes 2010 iii.jpg Employment Newsnotes (PDF) is an occasional publication by Lewis Silkin covering recent UK employment law developments in an accessible, succinct and entertaining way.  The latest issue includes articles on:

  •  The forthcoming World Cup - issues for employers
  • Prospects for employment law under the UK's new coalition government
  • New UK anti-corruption legislation - the Bribery Act 2010
  • Immigration - proposal for an annual limit on non-EU economic migrants
  • Dangers for employers from professional networking websites (e.g. LinkedIn)
  • Constructive dismissal - the Court of Appeal has ruled that an employer cannot 'cure' its breach of contract
  • The current debate over reform of the UK employment tribunal system
  • Tougher sanctions for breach of data protection laws introduced last April

Significant Decisions in Labour, Employment, Human Rights, and Pension Law in 2009

In the last year, Canadian courts have tackled a wide range of legal issues that are relevant to employers.  In the employment law context alone, the courts have considered the obligation of departing employees, the enforceability of non-competition covenants, and the ability of employees to commence a class action to seek damages for unpaid overtime pay. 

To keep employers up to date on developments in the law, Heenan Blaikie's national labour and employment law practice has prepared a paper entitled " Recent Developments in Labour and Employment, Pension & Benefits and OHS/Workers Compensation" (pdf).  The paper provides an overview of developments in the areas of employment, human rights, pensions, benefits, federal and provincial labour, workplace privacy, occupational health and safety, and workers' compensation law in  2009.

Rescission of Non-Competition Agreement

An employer can rescind a non-competition agreement at any time without giving a reason. This is possible under the condition that the agreement contains specific language providing for such right. It used to be believed that such right could only be exercised prior to the end of employment (ruling of Supreme Court of 8 February 2007; II PK 159/06). According to a recent ruling (4 February 2009; II PK 223/08), the time period to exercise this right can even extend until the expiration of the non-compete.