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Can I be personally bound if I execute an agreement on behalf of my company?

‘CONFIDENTIALITY AGREEMENT’ BETWEEN TWO CORPORATIONS FOUND TO BE PERSONALLY BINDING ON AN INDEPENDENT CONTRACTOR

Downey v. Ecore International Inc. 2011 ONSC 6617 (CanLII)

A confidentiality agreement contained a forum selection clause that provided that an action or suit to enforce the agreement would be resolved under the exclusive jurisdiction of Pennsylvania, United States. The clause was not enforced by the Ontario Superior Court in an Ontario action brought by the plaintiff, an Ontario resident, in his personal capacity. The Ontario court ruled that the confidentiality agreement contemplated that compensation was to flow to the plaintiff’s corporation, and not to the plaintiff personally, and this by itself was not sufficient consideration to bind the plaintiff personally to the Agreement. The Ontario Court of Appeal overturned this decision, and found that the confidentiality agreement and the consulting agreement formed a single transaction between the parties. The agreements were to be interpreted so as to accord with sound commercial principles and good business sense, and avoid commercial absurdity. The confidentiality agreement was intended to bind the plaintiff personally, and there was sufficient consideration to bind the parties.

Drafters need to ensure that the correct parties are named in the agreement. If an individual signs the agreement on behalf of a corporation, but is to be bound in their personal capacity as well, the individual should execute the agreement in their individual capacity, and there must be sufficient consideration flowing to both the individual and the corporation. Descriptions of the parties’ intent found in the ‘Background’ clauses of an agreement can be used by the court to determine intention. These ‘Background’ clauses should be drafted and reviewed carefully to ensure they are accurate.

Details of the case:

In Downey v. Encore International Inc. (2011) (ONSC), Mr. Downey entered into a Consulting Agreement on behalf of his corporation CSR Industries Inc. (“CSR”) to provide services to the defendant corporation Ecore International Inc. (“Ecore”), which then carried on business under the name Dodge-Regupol Inc. (“DRI”). A clause of that agreement required CSR to execute a copy of DRI’s “standard confidentiality agreement.” Another clause stated that Ecore would provide CSR with confidential information and compensation in exchange for the services of Mr. Downey as a “key person” of CSR. The purpose of this arrangement was to obtain Canadian tax advantages by being characterized as an independent contractor rather than an employee. (Please note that subsequent changes by the CRA have made the use of a personal consulting corporation with only one employee problematic.) Although remuneration was to be paid to CSR, in practice, commission payments were made personally to Mr. Downey.

In 2001, Mr. Downey invented a new product and assigned his rights in his inventions to Ecore. Mr. Downey submitted that his assignment was given in consideration for Ecore’s oral promise to “reasonably compensate” him for his inventions and assignment. However, Ecore argued that his assignment was instead in accordance with the terms related to inventions and discoveries captured in the confidentiality agreement. Ecore terminated the consulting agreement in 2011 but did not pay Mr. Downey any compensation for his assignment of the inventions. Mr. Downey then brought an Ontario action against Ecore in his personal capacity. In determining whether to allow Ecore’s motion to dismiss the action on the basis that the courts of competent jurisdiction should be Pennsylvania, United States, the lower court found that the clause should be enforced and that Mr. Downey’s compensation claim was within the ambit of the clause. The court found that the parties were bound to the agreement and that Mr. Downey would have had insufficient reasons to show why it would be unreasonable or unjust to adhere to the terms of that clause. However, the lower court ultimately held that the confidentiality agreement failed to bind Mr. Downey personally for lack of consideration flowing directly to him, as opposed to his corporation. The Ontario Court of Appeal overturned this decision.

The Court of Appeal held that the agreements formed a single transaction between the parties and needed to be read together to avoid commercial absurdity. Encore intended to protect its confidential information and the parties intended to bind Mr. Downey personally, regardless of the fact that the agreement was signed only on behalf of the consultant’s corporation. The fact that the confidentiality agreement was to apply “during and after” his employment meant that it was to apply during and after their relationship regardless of whether Mr. Downey was an employee or an independent contractor, and employee status was not a condition to the confidentiality obligations. The court looked to the wording of the ‘Background’ clauses to determine the parties’ intentions.

To read the full case on CanLII, click here.

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Why is it important for public bodies to establish the confidentiality of their information in a contract?

DVD TREATED AS CONFIDENTIAL INFORMATION

Order F2014-15 2014 CanLII 12116 (AB OIPC)

An applicant who had been unsuccessful in obtaining employment with the city of Calgary requested access to a DVD of a pre-employment polygraph interview under the Alberta Freedom of Information and Protection of Privacy Act (the Act). The 3rd party consultant (the Consultant) opposed the request on the basis that the DVD was confidential to it, and that disclosure would be harmful to their business interests. The Adjudicator held that although the Master Consultants Agreement did not contain a confidentiality clause, the facts showed that the DVD had implicitly been supplied to the City in confidence, public disclosure would harm their business interests, and denied access to the DVD.

Drafters should ensure that an agreement entered into with a public body contains a confidentiality clause, to protect the confidential information of the consultant from public disclosure. Specifying that reports, DVD’s etc. are confidential could reduce the expense and risk of establishing the confidentiality of the information when opposing access to information requests.

Details of the case:

In Order F2014-15, 2014 CanLII 12116 (AB OIPC), an unsuccessful job applicant for the City of Calgary applied under the freedom of information legislation for the release of a DVD of her pre-employment polygraph interview, conducted by a 3rd party consultant (the Consultant). The Master Consultants Agreement entered into between the City and the consultant did not have any provisions dealing with confidentiality. The Consultant opposed the disclosure on the grounds that the DVD was supplied in confidence, and that public disclosure would be harmful to their business interests. The consultant gave evidence that normally, only a summary report and not the interview DVD, is given to employers; the DVD contained a record of the entire interview process; the interview process is unique to them in the world and is recognized internationally as such; the interview techniques had thus far been protected from public scrutiny; release of the DVD created a significant risk that the DVD would be available on the internet, and that his would harm their business interests. The adjudicator found that the DVD was given to the City of Calgary in confidence, and that the information was technical information (confidential to the Consultant) the release of which would harm their business interests.

To read the full case on CanLII, click here.

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What is the maximum term of an NDA if it is not mentioned in the contract?

Casey Marshall / Flickr 

When signing a non-disclosure agreement, the benefits of including a term clause (i.e., end of the contractual obligations) depend on whether you are more likely to be disclosing or receiving confidential information.

If you are the disclosing party, you want to ensure that your confidential information is kept confidential and there are no potential unauthorized disclosures. This means you want to protect the confidentiality of that information for as long as possible.

If you are the receiving party, you want to limit your obligations in the agreement, which includes what information you have to keep confidential and for how long you have to keep it confidential.

 

You can view and customize a Confidentiality Agreement on Clausehound:

NDA

 

Term of a Confidentiality Agreement

If a term clause is not included in an NDA, the parties can imply that the NDA will be in effect indefinitely. An NDA with no term clause is more common in an agreement where an ongoing relationship is taking place.

Assuming that the NDA contains a termination clause, once a party gives notice to terminate the contract, all of the obligations under the contract will terminate on the termination date unless the NDA includes a survival clause. However, circumstances may vary depending on whether the information is considered a trade secret, where the Ontario Court of Appeal held that disclosing a company’s trade secrets can be considered a restraint on trade.  

Note that after the termination date, the receiving party will no longer be under an obligation of confidentiality for information received after the termination date. This will be true whether or not the confidentiality clause continues to apply to confidential information received before the termination date.

 

Survival Clause

For an example of a contract with a survival clause, follow the image below!

Survival

The exception to all the obligations being terminated on the termination date is where a survival clause has been included. A survival clause explicitly states which obligations will ‘survive’ the life of the agreement. Clauses that survive an agreement usually include the confidentiality clause.

Although a confidentiality clause can ‘survive’ the term of the agreement, the standard term of survival for a confidentiality clause is generally  two to four years after the termination date. Companies that are receiving confidential information will be reluctant to agree to an unlimited term for the confidentiality clause.

To see a standard non-disclosure agreements, visit our Small Business Law Library!

 

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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

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Emailgate: How an NDA is Affecting the Presidential Election

About a week ago, the Federal Bureau of Investigation announced that it would not be pressing charges against Hillary Clinton for her use of a personal email during her tenure as Secretary of State. This has been a long time coming for Clinton, as the email controversy has been a blight on her presidential campaign from its start.

 

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News of “Emailgate” broke in 2014, and picked up last year right before Hillary Clinton announced her run for president. It has dealt a huge blow to her trustworthiness and transparency, with a Morning Consult national survey from this month finding that “half of voters said Clinton’s use of a private email server was illegal.” Those are dangerous numbers for the Democrats, leaving voters finding Donald Trump twice as honest as Hillary Clinton according to a recent Rasmussen survey.

If you still don’t really know much about the controversy, here’s a quick rundown:

Being the Secretary of State involves handling sensitive information, and it was discovered that during her tenure, Hillary Clinton used a series of personal email servers that were nowhere near as secure as federal record systems would have been. This left her correspondence vulnerable to being compromised by the likes of hackers and foreign countries, and people are not happy about that.

At the heart of this controversy lies the fact that Hillary Clinton had signed a Classified Information Nondisclosure Agreement (“NDA”).

 

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Confidential information, or classified information as per this agreement, was given a clear definition as being marked or unmarked. Specific obligations related to confidentiality were outlined, such as protecting such information “in the interest of national security.”

Hillary Clinton has pushed back at the controversy in true political fashion, skirting the issue by saying first that she never handled any classified information over email, and then that she had not known some content was classified because it was not marked as such. But the first point was disproven by the FBI, and the second is explicitly covered in the agreement. She also tried to dampen the blow of the scandal by pointing out that most other Secretaries of State before her had utilized personal emails as well, but status quo is no good defense against contractually agreed upon obligations related to confidentiality.

All of this leaves Hillary Clinton in a position to be either criminally charged for violating federal law, or to receive administrative discipline for wrongdoing in her position as Secretary of State.

As she no longer holds that position, discipline is not a viable option. As for the former, neither the FBI or the Attorney General are willing to press charges.

So, if a substantial portion of the public finds her conduct criminal and legal violations did occur as per the agreement she signed, why is she (so far) getting away scot-free?

Here it’s a matter of nuancing the law. The FBI intimated that there was definitely evidence of wrongdoing that amounts to the actus reus, and went so far as to chide her for her actions, describing her conduct as “extremely careless.” Hillary Clinton admitted just as much when she said that in hindsight, she should have had a separate work email. However, she simply does not meet the requirement for intent, or mens rea, of having “intentionally transmitted or willfully mishandled classified information” beyond a reasonable doubt.

Without substantial evidence of such intent, a court cannot convict her. Without full confidence that a court can convict her, it would be dangerous to press charges against a woman who is no longer just a former Secretary of State, but now the presumptive nominee for the Democratic Party in the rapidly approaching presidential election. Such a move would have enormous, and potentially disastrous, consequences for the country.

Click here to view our Non-Disclosure Agreement template in our Small Business Law Library!

This article was co-authored by: Alina Butt

 

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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

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The Scope of your Confidential Information: Too Broad, Too Narrow, or Just Right?

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In our office, and no doubt in many others, the non-disclosure agreement (NDA) is considered a stepping stone into the world of contracts because of their straightforwardness. The purpose of an NDA is to protect information you want to keep confidential. Just like how information can exist in many different forms, the NDA can be applied to a variety of contexts, be it between companies, employers and employees, or laypersons.

But with great applicability comes the question of scope—what is appropriate?

Pastor v. Chen (2002) (BCPC) is a good example of where too general of an NDA can open you up to problems. The claimant in this case, Amando Pastor, was just a teenager when he developed the moves for his own version of “La Rueda,” a Cuban salsa dance, by incorporating a complex group element. He copyrighted his version of the dance, which he called “the Wheel of the World,” years later as a dancing instructor in Vancouver.

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Not soon after Pastor began teaching his dance, the defendant, Roger Y. Chen, became his student. Upon reaching a level of proficiency to perform publicly, Pastor made Chen and all his other dancers sign a confidentiality agreement that reads as follows:

“I, Roger Y. Chen, willingly agree to not divulge, publicly perform or teach the artistic work that I have had access to as a performer/student … without the Director Amando Pastor’s, permission … everything I have been taught by him is confidential, and is his property, for which he holds copyrights.”

While at first glance there is nothing wrong with such a succinct NDA, upon a closer look some problematic interpretive gaps make themselves apparent. This agreement lacks a clear definition of what exact “artistic work” Pastor retains the rights to. The intimation that anything he taught his students is his property is an incorrect one, because there are many dance moves that are considered general knowledge. Pastor was even aware of this distinction, as “when asked if he ever told his performers which moves were his, his answer was that he did not make it clear because he wanted to keep them to himself.” For a confidentiality agreement to work, a clear disclosure provision is just as essential as a clear definition of confidential information.

So, when Chen was discovered to be teaching dance routines similar to Pastor’s, he was easily able to use this inconsistency as an argument. He said that the moves he had been teaching were ones already in the public domain, not Pastor’s own. Ultimately the judge found that this was not the case. Regardless, if the definition of confidential information had been more explicit, or even if a non-competition clause had been included to diversify the agreement, the claimant could have better protected his property. To work best for everyone involved, an NDA has to have a clear scope and specificity in outlining what exactly is confidential and how confidentiality should be properly performed.

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On the other hand, being too specific can also be problematic, as can be seen in Minera Aquiline Argentina SA v.

IMA Exploration Inc. and Inversiones Mineras Argentinas S.A. (2006) (BCSC).

The defendant had been scoping out a plot of land to buy in Argentina, and received geological data from the seller during site visits and tours, which required signing a confidentiality agreement. The plot in question was later purchased by the plaintiff, while the defendant used the data received to discover a large metals deposit elsewhere. Whether the data was considered confidential or not was the crux of this case. The definition of confidential information was as follows:

“… financial, operating, technical, geological and other information (the “Confidential Information”) concerning the Project … will include all communications, whether written, electronically stored or delivered, or oral, of any kind, between the Participants relating to the Project, any observations made by Reviewer during site visits or tours, and any and all information, reports, analyses, studies, compilations, forecasts or other materials prepared by Reviewer relating to the Project which contains or otherwise reflects such information.”

This is a much more comprehensive definition of confidential information, but still, the defendant was able to argue that since the data wasn’t explicitly listed, it wasn’t considered confidential. The judge resolved that the data was considered confidential information because the definition included “the words ‘relating to’ and ‘concerning’”. This specific wording cast the net of the definition wide enough to cover unlisted information. So, in a sense, the definition was actually just broad enough to serve its purpose effectively here.

This case is one that shows there is only so much that can be done to cover your bases, so it’s important that your contract can hold up under scrutiny.

One of the most effective steps you can take when drafting an NDA is to be cognizant of covering what is most important to the protection of your business – and define it.

Case Citations:

  • Pastor v. Chen, 2002 BCPC 169 (CanLII)
  • Minera Aquiline Argentina SA v. IMA Exploration Inc. and Inversiones Mineras Argentinas S.A., 2006 BCSC 1102 (CanLII)

 

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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

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Balancing Privacy and Law Enforcement: Apple vs. FBI

Every system of government must balance individual privacy and rights, against state control. Where the lines are drawn determines what type of society we live in. One the one hand, the more we protect individual privacy, the less control the government has in protecting the public at large. On the other hand, if the government has too much control, citizens’ privacy is limited.

 

There is also another element to consider in a free and democratic society: can the government force a corporation to breach its contracts with its customers in the interests of public security?

 

This was the dilemma in the dispute between Apple and the FBI in the aftermath of the San Bernardino attack.

 

iPhone Key

 

For those of you that aren’t aware, in December 2015, two individuals committed a gruesome terrorist attack in San Bernardino, killing 14 people at an office party. The FBI obtained the iPhone of the shooters and was eager to search through the phone for any evidence or information relating to the attack. However, the phone was password protected. The FBI didn’t have the password and if they attempted multiple incorrect combinations there was a risk that the iPhone’s data would erase in its entirety.

 

The FBI needed Apple’s help to access the information inside the phone. However, Apple claimed that they did not have the ability to decrypt the phone. Furthermore, Apple wasn’t willing to create the software to do so, as this would essentially give the government (and whoever else obtained this new technology) the ability to unlock any phone – yes, even yours!

 

Wrong Passcode

                                                                                   

This led to the Department of Justice (DOJ) applying to the court for an order under the 1789 All Writs Act compelling Apple to create and provide the new software to the FBI. The writ was granted. The use of the All Writs Act was unprecedented and many legal experts said it was likely to prompt “an epic fight pitting privacy against national security.”

 

Apple objected to this order and did not assist the FBI in trying to decrypt the phone. However, the FBI was eventually successful in its decryption efforts. Many allege that a third party came to the FBI’s assistance. As a result, the FBI was able to gain access to the information stored in the phone.

 

iPhone FBI Interaction

 

 

Who’s Side Are You On?

The battle between Apple and the FBI created worldwide headlines, even becoming one of the pressing questions in the recent Republican Presidential debate. There appears to be no clear consensus on what side the American people are on, which illustrates how tough it is to balance privacy and government regulation.

 

Pros and Cons of Apple’s Privacy Position

  • Assurance that information in your phone is safe and secure
  • For the time being, stops a precedent from being created.

 

Scrutinizing

 

Pros and Cons of FBI Security Position

  • Allow FBI and Government to protect the public from crimes including terrorist attacks – such as San San Bernardino
  • Precedent established.

    Risk of government or others gaining access to other phones, or requiring Microsoft and other big tech companies to give assistance to access their devices.

 

Some popular figures have voiced their opinion on the matter:

 

FBI SIDE

Donald Trump

Donald Trump: “To think that Apple won’t allow us to get into her (sic) cell phone. Who do they think they are?”

 

Justice Department Spokesperson: “It is unfortunate that Apple continues to refuse to assist the Department in obtaining access to the phone of one of the terrorists involved in a major terror attack on U.S. soil.”

 

Cyrus Vance, Manhattan District Attorney: “Decisions about who can access key evidence in criminal investigations should be made by courts and legislatures, not by Apple and Google.”

 

For Apple

 

Alex Abdo, American Civil Liberties Union: “This is an unprecedented, unwise, and unlawful move by the government. Apple deserves praise for standing up for its right to offer secure devices to all of its customers.”

 

Lance Ulanoff, Mashable: “Forget the technology. If the FBI successfully forces Apple to create a new OS just to brute-force hack its own product, it’s the first step through a very dark one-way door — for all of us.”

 

Mark Cuban: “Amen. A standing ovation. They did the exact right thing… Encryption is easy. It is like wearing a seatbelt in your car. For years we didn’t. Then we did and it was smart.”

 

Mark Cuban

 

As is evident by the widely contrasting opinions noted above, people are very divided on the issue. We all want privacy protected – until someone else’s privacy interferes with our safety.

 

With the amount of personal information stored in our digital devices growing daily however, it is essential that we come to an appropriate resolution of this issue.

 

In the end, it’s all about balancing privacy and law.

 

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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

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The Panama Papers – What's Tech Got to Do With It?

A few weeks ago we witnessed the biggest leak of data to date.

The Panama Papers, a leak by the International Consortium of Investigative Journalists (ICIJ) of copies of over 11.5 million legal and financial documents, included vast amounts of information dealing with a Panamanian law firm’s ties to transactions associated with offshore tax havens.

 

The Big Names

A number of the participants named as dealing with offshore companies were well known companies, political figures and celebrities including:

  • Russian President Vladimir Putin;
  • Member of FIFA’s Independent Ethics Panel, Juan Pedro Damiani; and
  • World-famous soccer player, Lionel Messi.

 

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The Problems Exposed

Most readers understand that the Panama Papers exposes problematic tax havens and the users of such havens. However, the Panama Papers also expose a complex set of issues rolled into one big overwhelming story. So, what’s tech got to do with it?

 

Investigation

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Aside from being a story of transparency, confidentiality and the major need for law reform, the Panama Papers also brought to light the power of technology and how it can be used not only to someone’s detriment, but can also be used to that same person’s benefit.

Since the data leak was based on files held at renowned law firm, Mossack Fonseca, the potential breach of confidential client documents have many law firms worried. And for good reason, since lawyers have a fiduciary duty to maintain solicitor-client privilege. However, while acknowledging that the lack of data protection for data management/storage software can be a threat, law firms must also realize the opportunity in utilizing this innovation to their benefit.

 

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Big Data – How To Keep It Under control

Rather than law firms seeing ‘big data’ (big data = a large or complex amount of information that requires organization or indexing) software tools as a threat to their client’s confidential information, they can consider the opportunity that knowledge management tools provide to an industry managing a tremendous amount of knowledge. One of the main purposes of a lawyer’s job is to determine what information is relevant to an issue and what information is not. A manual process combined with an overwhelming amount of information can make this task more daunting and less efficient.

With the use of knowledge management tools, law firms can experience the following benefits:

  • A more efficient process for lawyers to search through documents;
  • An organized library of precedents and knowledge to continuously add to;
  • A paper friendly and cost effective method of retaining important information; and
  • The ability to properly index information based on relevance in various areas of law or specializations.

The ICIJ mentioned that had it not been for the knowledgement management assistance of software products, such as Nuix and Linkurious, they would not have been able to provide the story.

The complexity of swimming through endless leaked documents to find relevant ones that will make the juicy details of a big headlined story is similar to the experience of drowning in numerous cases, precedents and notes to resolve a client’s dispute or a protect a client’s rights.

 

Help

 

Conclusion

With the wealth of knowledge that lawyers have, contained in precedents and existing contracts, it can become overwhelming to provide services to clients that deal with their precise needs. Law firms are rightly concerned about their privacy after the Panama Papers leak, but it would be a mistake to overlook the usefulness of big data for lawyers trying to synthesize the vast amount of knowledge they have and provide the best legal solutions for their clients.

By sharing their knowledge and using information and data technology tools, lawyers can be sure that they are using their wealth of data in the best way for their clients. Big data doesn’t need to be scary, if used correctly, it can lead to a win-win situation for lawyers and their clients.

 

Peeking

 

Take-Aways

  • The Panama Papers leak presented a number of issues, including tax reform, solicitor-client privilege, and the need for data protection.
  • The Panama Papers leak presented an opportunity for knowledge management software tools, thanks to the ICIJ’s use of Nuix and Linkurious.
  • Knowledge management is an innovative process that can assist lawyers in their organization of vasts amount of information.

 

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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

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Survival Gear: Making the Confidentiality Clause a ‘Survivor’ of the Employment Contract

The Jungle

For most of us, the toughest ‘jungle’ we will have to learn to survive in is the world of employment. Most of us will not win a $1 million prize by being crowned the Sole Survivor on the popular show Survivor – we will have to earn our $1 million day by day at work. And unlike the rules on the TV show, it takes more than personality conflicts to snuff out our membership in the workplace ‘tribe’ in which we find ourselves. This is demonstrated in the following case, Gillespie v. 1200333 Alberta Ltd. [2012] ABQB 105, cited at http://www.canlii.org/en/ab/abqb/doc/2012/2012abqb105/2012abqb105.html.

 

The business world’s toughest challenge is to survive each day.

A few years ago, an employee was fired because of ‘personality conflicts’. She cleared out her desk and left. Later it was discovered she had taken home some papers which contained confidential personal information of some of the employer’s clients. This violated the confidentiality agreement.

She sued the employer for wrongful dismissal and claimed 4 months’ wages in lieu of notice. The employer argued in defence that she had breached the confidentiality agreement and so her termination was justified. On appeal the court held that at the moment she was fired they had no cause to fire her because she had not yet breached the confidentiality agreement. She was awarded the 4 months’ wages.

 

The Challenge

Why didn’t the employer claim for a breach of the confidentiality agreement? Why did the employer rely only on defending the wrongful dismissal suit?

When an employee is fired, the employment contract ends immediately. This means that if the confidentiality agreement was contained in the employment contract, it would no longer bind the employee as soon as she/he is fired. So in this situation, as soon as she was fired, and then cleared out her desk, she may no longer have been bound by the confidentiality agreement.

This is troublesome for employers, who need protection for confidential information for at least three reasons: to comply with privacy protection legislation; to protect their own confidential information; to comply with agreements with their clients to protect the clients’ confidential information.

What is an employer to do?

 

The Survival Gear

Can an employer make the confidentiality obligations ‘survive’ the employment contract? Yes!

The legal survivor gear is called a ‘survival clause’, and typically says something like this: “Notwithstanding any other provision of this Agreement, the Confidentiality Clause shall survive the termination of this Agreement.”

While some survival clauses are more detailed, and some contain definite periods of time for which the named obligations will survive the termination of the agreement, the key feature is that the survival clause clearly identifies which obligations are to survive.

Why didn’t this employment contract contain a survival clause? In the rush of a busy practice, it is easy to overlook what most people call ‘boilerplate’, and to underestimate the significance of one missing clause.

You can check out our gap highlighting tool as a way to minimize the risk of missing important ‘little’ clauses like the survival clause.

 

Do you have the legal survival gear you need to make it to the top?

 

In reality, the survival clause is not ‘just boilerplate’ – but like the immunity necklace on the show, Survivor, it makes all the difference. If our employer had included a survival clause in the employment agreement, and this survival clause had clearly covered the confidentiality obligations, this ‘episode’ might have had a different ending.

 

Takeaways:

  • the termination of an employee cannot be justified by events that happen after the employee is fired
  • confidentiality obligations will end when an employee is fired unless the employment contract contains a survival clause
  • the survival clause must clearly identify the obligations which are to survive the termination of the contract

 

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