Injunction strategies if employees steal trade secrets

By Scott Foster

Sadly, it is not uncommon for ex-employees to take a company’s trade secrets when they quit or are fired. The effects can be devastating leading to loss of competitiveness, customers, business relations, goodwill, and so on.

So what does one do in response?

The first step is to consider litigation because once a claim is started two key types of interim relief may become available to assist the employer in protecting its assets and business viability.

We briefly discuss, with a focus on two recent British Columbia cases, injunctions and search and seizure orders (also called Anton Piller orders). A word of warning, this area of law comprises hundreds of cases and there are many nuances in the law. As such, the summary below is only at a very high level.

Injunctions

Injunctions are orders that prohibit or mandate conduct by a defendant. For example, see the Wizedemy decision linked below. Different thresholds apply to prohibitory and mandatory injunctions (and are outside the scope of this brief note) but in general the assessment of whether to grant an injunction requires:

a) an assessment of the merits of the case;

b) a consideration of whether the applicant will suffer irreparable harm if the application is not granted; and

c) an assessment of the balance of convenience.

Ultimately, the question is whether it is just and equitable that an injunction should be issued. Often the most difficult part of the analysis is to convince the court that the employer will suffer “irreparable harm”. The Supreme Court of Canada held in RJR Macdonald that “irreparable” refers to the nature of the harm rather than its magnitude. It is harm which either cannot be quantified in monetary terms or which cannot be cured, usually because one party cannot collect damages from the other. Examples include where one party will be put out of business by the Court’s decision, or where one party will suffer permanent market loss or irrevocable damage to its business reputation.

Assuming the plaintiff can meet the threshold, in the case of ex-employees who have taken trade secrets, the Court can order the return of the information and/or that the information be kept confidential pending trial. Any such orders are serious matters – if a defendant does not comply it can be found in contempt of court and fined or imprisoned. Injunctions are therefore usually a key strategic tool.

Search and seizure orders (Anton Piller orders)

An Anton Piller order compels a defendant to permit entry to its property for search and seizure of evidence and records, including electronic data and equipment. The objective is to preserve incriminating evidence before the defendant destroys it.

A good recent example is the FLS Transportation decision linked below. In FLS Transportation all 21 employees of the Vancouver branch of the plaintiff resigned and started working for the defendant (a direct competitor). The plaintiff investigated and discovered the ex-employees had: (i) sent its confidential information to their personal email accounts; (ii) downloaded confidential information to a USB device; and (iii) printed hard copies of confidential information.

The plaintiff filed an application for an Anton Piller order without notice to the defendants. The assessment of whether to grant an Anton Piller order requires:

a) the plaintiff must demonstrate a strong prima facie case;

b) the damage to the plaintiff resulting from the defendants’ alleged misconduct must be very serious;

c) there must be convincing evidence the defendants have incriminating documents or things in their possession; and

d) it must be shown there is a real possibility the defendants may destroy such materials.

On assessment, the Court concluded the defendants had access to and likely made unauthorized use of confidential information which gave the plaintiff a strong prima facie case and further the impact or damage on the plaintiff would be very serious. Turning to the last two factors of the test, the Court concluded the defendants likely had incriminating documents or things in their possession (such as on USBs and in their email accounts) and there is a real possibility the defendants may destroy incriminating documents or things in their possession if they were given advance notice of the claims. The Court inferred a risk of destruction from the surrounding circumstances – from the defendants’ suspicious and underhanded behavior, the Court inferred the defendants would destroy evidence if given notice.

As a result, the Court granted an Anton Piller order. The Court also sealed the court records to permit the plaintiff to execute the Anton Piller order without the defendants learning of it publicly in advance.

Conclusion

Both injunctions and Anton Piller orders are powerful equitable remedies. The courts, for example, describe Anton Piller orders as the “absolute extremity of a court’s powers.” As a result, the courts require plaintiffs to meet strict legal and evidentiary thresholds.

Wizedemy Inc. v. Karras, 2024 BCSC 630

FLS Transportation Services Limited v. TRAFFIX Group Inc., 2024 BCSC 1078