Alberta Employment Update - Winter 2011

Contents

The Alberta Court of Queen's Bench considers the use of confidential information by a former employee in a competing business venture. Alberta Courts consider the availability of Workers' Compensation coverage in three cases involving disputes between individuals and various administrative branches of the Workers' Compensation Board ("WCB"). Stonetile (Canada) Ltd. v. Castcon Ltd. 2010 ABQB 392

Castcon and Stonetile are Alberta companies, both of which produce concrete products used for the finishing of home exteriors. Stonetile began developing concrete products in 1990 and presently continues in the business of production and development of those products. Castcon was started in 2003, and uses many of the same production processes that had been implemented by Stonetile. Castcon's director and primary shareholder is Robert Will, a former employee and member of the executive of Stonetile. The dispute between the parties arose due to allegations that Will had misappropriated the production processes of Stonetile, later using those secrets to create a competing business in Castcon. Stonetile brought an action against Castcon for breach of confidence, breach of contract, and breach of fiduciary duty.

At trial, Justice Nation found that none of the individual processes used by Stonetile in the production of their products could be properly classified as either a trade secret or confidential information to which Stonetile had any right. Instead, the question of confidentiality arose out of the combination of individual processes which, when implemented collectively, were alleged to be the confidential property of Stonetile.

Justice Nation outlined the test required to prove misuse of confidential information, citing Lac Minerals Ltd. v. International Corona Resources Ltd., [1989] 2 S.C.R. 574: "The plaintiff has the onus to prove that: (1) the information conveyed was confidential, (2) the information was communicated in confidence and (3) it was misused by the party to whom it was communicated." Justice Nation held that the plaintiff satisfied the requirements of that test in this case. The information was confidential as it was neither known nor available to individuals outside of the company. In satisfaction of the second branch of the test, the confidential information was communicated to the defendant in confidence, as was evidenced by the plaintiff's employment of confidentiality agreements signed by the defendant. Finally, the confidential information was misused by the defendant company to "springboard" it into an advantageous position as a direct result of the confidential information misappropriated from the plaintiff.

During his employment at Stonetile, Will signed a document entitled 'Confidential Understanding'. The purpose of the document was to prevent the dissemination of confidential information that could be used contrary to the commercial interests of Stonetile. Many aspects of the confidentiality agreement were irrelevant to the matters at issue in the case. The contents of the Confidential Understanding which were of interest to the Court were contained in three paragraphs of the Confidential Understanding. The first paragraph dealt with technical knowledge relating to the Stonetile production process obtained by Stonetile employees. The second dealt with dissemination of information to persons "outside of the employee realm". The third dealt with the use of confidential information in an attempt to compete directly or indirectly with Stonetile.

Justice Nation characterized the Understanding as 'vague', especially in regard to information which was subject to confidentiality. The agreement described this information as that which was "other than common knowledge". Applying the principle of contra proferentem, Justice Nation interpreted this ambiguity against Stonetile, holding that the contract was not sufficiently specific about the information to which it applied in order to hold the defendant to the understanding. Stonetile's action for breach of contract was dismissed.

The final issue for the Court to decide was whether Castcon, through the actions of Will, had breached a fiduciary duty to Stonetile. In order for Stonetile's claim to succeed, it must prove that Will stood in the position of fiduciary to Stonetile, and that he had acted contrary to his fiduciary duties while such duties were still owed to Stonetile. Justice Nation outlined the preconditions necessary for a fiduciary duty to arise, as stated in Frame v. Smith, [1987] 2 S.C.R. 99: "(1) The fiduciary has scope for the exercise of some discretion of power. (2) The fiduciary can unilaterally exercise that power or discretion so as to affect that beneficiary's legal or practical interests. (and) (3) The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the...

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