Independent Contractors Subject
Owe Duty of Confidentiality
By Melynda Layton LLB As Published in November 2003 Issue of Up-Date OHRPA Newsletter
It is trite law employees owe an obligation to ensure confidentiality of employer information. In a recent Ontario Superior Court Case, IT/NET Ottawa Inc. v. Berthiaume, it was affirmed this obligation extends to persons providing services under a consulting agreement.
IT/NET is a management-consulting firm offering information management technology services. Mr. Berthiaume’s services were retained for a contract with the federal government (SXID Branch of the Department of Foreign Affairs and International Trade) from 1996 to 2000.
When Mr. Berthiaume became a sub-contractor he signed a master agreement detailing his relationship with IT/NET. The agreement included a non-solicitation and non-competition clause effective for twelve (12) months following termination of the contract. It also included a confidentiality clause which required Berthiaume refrain from divulging:
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any name, address or requirement of any customer of the IT/NET;
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any process, method, or device of IT/NET, or other information, whether of the foregoing character or not, acquired as a result of his service;
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any of the financial affairs of IT/NET.
At the inception of the arrangement it was explained to Mr. Berthiaume the non-solicitation and non-competition clauses restricted his ability to work at SXID through other consulting firms at the end of IT/NET’s contract.
Each time IT/NET’s contract was renewed Mr. Berthiaume executed supplementary agreements confirming his role at SXID. The master agreement did not form part of those contracts.
In June 1998 Mr. Berthiaume expressed concern with the terms of his contract. He wanted a salary increase and more training. On June 16, 1998 he gave written notice to IT/NET it could no longer sub-contract him. Three days later an agreement was struck allowing IT/NET to sub-contract Mr. Berthiaume’s services in exchange for an increase compensation and more training. IT/NET again secured the contract with SXID.
In 1998 Mr. Berthiaume did not sign a supplementary agreement as he did not want to be bound by the master agreement. He did not communicate this intention to IT/NET; on the contrary he simply remained silent. Mr. Berthiaume’s relationship with IT/NET continued in the same fashion as before.
In May 2000 Mr. Berthiaume again advised IT/NET it could no longer sub-contract him. Mr. Berthiaume was seeking an additional pay increase. When IT/NET explained it could not give him what he was looking for Mr. Berthiaume left IT/NET and allowed Pertinex Software Authority to use his name when biding for contracts. In 2000 Pertinex was successful with its bid to SXID. Mr. Berthiaume continued as a consultant with SXID through Pertinex.
IT/NET sued Mr. Berthiaume for breach of contract.
The Ontario Superior Court of Justice found although the master agreement between Mr. Berthiaume and IT/NET continued in effect until June 2000 the non-solicitation and non-competition clauses were unenforceable. These clauses were contrary to public policy, overly broad, and unduly vague.
Mr. Berthiaume, however, breached his duty of confidentiality. Although he was not a fiduciary Mr. Berthiaume had both a contractual and common law duty not to exploit confidential information obtained while working with IT/NET. In using this information a contract opportunity was diverted to Pertinex.
Although Mr. Berthiaume was not an employee he was the only individual with the opportunity to develop a relationship with the federal government. He knew the work environment as well as the key people involved with personnel decision-making.
IT/NET did the legwork to get contracts with SXID. It reasonably expected to profit from this investment. Mr. Berthiaume knew SXID’s need for a Consultant, the technical requirements of the position, as well as the proposals which were successful in the past. This was confidential information acquired as a consequence of his relationship with IT/NET which Mr. Berthiaume had an obligation not to exploit for his own benefit.
The Court awarded IT/NET damages for lost revenue in the amount of $22,000.00 as well as punitive damages.
IT/NET v. Berthiaume demonstrates the benefit of a clearly worded contract as a tool for protection against unfair competition. An agreement entered into prior to commencement of a relationship, whether as an employee or independent contractor, will be enforceable when there is no duress, the evidence establishes it was a product of negotiation, and the equity of the situation supports the protection of the organizations interests.
To ask a question or for further advice please contact Melynda at melynda.layton@careerlaw.ca or by telephone at 613-225-4400
