Lexpert magazine features articles and columns on developments in legal practice management, deals and lawsuits of interest in Canada, the law and business issues of interest to legal professionals and businesses that purchase legal services.
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LEXPERT MAGAZINE | MAY 2018 63 BY GEORGE TAKACH TECHNOLOGY After the Ceridian case, employers should learn to draft post-employment non-compete agreements very narrowly Non-Competes: When Less Is More I REGULARLY GET asked by clients to help them protect their tech-related assets. For a soware company, or even a tradition- al company such as a bank or telco, this in- cludes preserving the value of their soware code. One legal mechanism typically used is to have key employees sign post-employ- ment non-competition agreements. A recent decision from the Ontario Superior Court in Ceridian Dayforce Corporation v. Daniel Wright, however, illustrates just how careful you must be in draing these covenants. MULTIPLE LEGAL LEVERS Before turning to the important Ceridian decision, it is worth noting that there are multiple legal strategies to help a company preserve its core technology-oriented pro- prietary assets. e first is copyright, which protects the soware code your team de- velops. However, that only protects against a third party copying the actual soware code itself; as long as the second-comer only reproduces your product's general ideas, it will be hard to protect them under copyright. By contrast, the most powerful form of IP protection (and the hardest to obtain) is patent rights, because patents protect a particular feature or function of the soware that no one can reproduce un- less they secure a license from you first. Finally, protecting a trade secret such as a unique artificial intelligence algorithm and related process requires a certain degree of caution. e law will protect your pro- prietary interest in your new development as long as you keep it secret, meaning you may disclose it only to recipients who have signed strict non-disclosure agreements. In this way you can keep your trade secret for a long time, and the judicial system will help you to protect it. EMPLOYEES AS TRADE SECRET DESTROYERS One of the biggest threats to unauthor- ized disclosure of trade secrets is, some- what perversely, the staff who helped you develop your trade secret in the first place. And because, in effect, all companies are "tech companies" nowadays, the practice has developed that employees, when join- ing an organization, are required to sign a non-disclosure agreement. Equally, compa- nies use elaborate and lucrative compensa- tion plans, including bonuses and equity or quasi-equity options, to keep key creative staff happy in order to minimize the risk they will leave the company and — wheth- er consciously or inadvertently — disclose your trade secrets to a new employer. When these mechanisms are insufficient, employ- ers still try to limit the flight risk of their top technical staff by various contractual means, chief among them having each de- veloper of trade secrets sign a covenant not to compete against the prior employer for a period of time aer the employee leaves the employ of the company. Let's call this covenant the Non-Compete Agreement, or NCA. A CAUTIONARY TALE To use an NCA to prevent a soware devel- oper employee from leaving your shop and immediately joining your archrival com- petitor to do the same for them that said employee was doing for you, you must cra your NCA very, very carefully. e recent Ceridian case teaches us how not to do this. In that case Ceridian, which developed SaaS HR soware, had an employee who took part in some of the development effort supporting parts of Ceridian's soware. is employee subsequently le Ceridian to join another company. Ceridian then as- serted an NCA, the enforceability of which was the subject of this summary judgment motion brought and lost by Ceridian. If you wish to address such a situa- tion through an NCA, the NCA must be draed very narrowly. For example, if your company develops artificial intelligence soware for the banking industry and an employee does banking-related artificial intelligence soware development for you, then the NCA should restrict the scope of activity to the employee i) joining another company that creates AI soware for the banking sector, in order to ii) develop AI banking soware for them. However, your NCA should allow the employee to work on any other kind of AI soware (other than banking-related) for any other kind of company, once they leave your employ. One reason the court found the NCA PHOTO: SHUTTERSTOCK | COLUMNS |