A spice blend developed over twenty years in a Brampton commercial kitchen. A spreadsheet showing what a freight broker really pays each carrier on each lane. The tolerances a small tool-and-die shop has worked out through years of trial and error. None of these will ever have a patent or a registered trademark, and yet any of them might be worth more than everything else the business owns.
Trade secrets are unusual in that there is nothing to apply for. In Ontario, no government office issues a certificate, and no statute gives a civil right called “trade secret ownership.” Protection comes from the common law, your contracts, and how carefully you actually treat the information. If you act as though something is a secret, the law can help you. If you leave it on an open shared drive, a court may well conclude it never was one.
This is general information about Ontario and Canadian law, not legal advice. Whether particular information qualifies depends on the facts, so take advice on your own situation before you sign or send anything important.
What Counts as a Trade Secret
Canada’s Criminal Code offers the most convenient description. Section 391 defines a trade secret as information that is not generally known in the trade or business that uses it, has economic value because it is not generally known, and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. Although that definition belongs to a criminal provision, those three ideas are a sound working test for any business owner.
Examples can include formulas and recipes, manufacturing methods, software source code, supplier pricing and terms, customer lists with buying histories, bid-pricing models, internal cost data, and marketing plans. Information does not need to be technical. Some of the most valuable secrets in a small business are boring-looking spreadsheets.
Certain things do not qualify, regardless of how much you would like them to:
- Anything publicly available, including what appears on your website or LinkedIn
- General knowledge and skill an employee gains from doing the job
- Information anyone can get by looking at or buying your product, subject to any legal limits on doing so
- Facts that are simply known across the industry
The line between your confidential information and an employee’s general skill is often the central issue in these disputes. A chef who leaves your restaurant can still cook. She may not be able to take your binder of recipes with her.
The Legal Tools in Ontario
Since there is no single trade secret statute, a claim usually rests on one or more of the following.
Breach of confidence. In Lac Minerals Ltd. v. International Corona Resources Ltd., a 1989 decision, the Supreme Court of Canada set out the basic elements: the information was confidential, it was communicated in confidence, and it was misused to the detriment of the person who shared it. The obligation can arise even without a written contract, where the circumstances make the confidence clear. In that case, information was shared during business negotiations that never became a final deal, which should be of interest to anyone showing their numbers to a potential partner or buyer.
Contract. A non-disclosure or confidentiality clause gives you a direct claim and removes much of the argument about whether the recipient knew the information was confidential. It can also set out who may see the information, how long the duty lasts, and what must be returned.
Duties of employees. Employees owe a duty of fidelity while employed and cannot disclose or misuse confidential information, and that duty regarding confidential information continues after they leave. Senior managers and key people may owe broader fiduciary duties, which can restrict them from taking corporate opportunities or soliciting customers for a period after departure, even without a written clause.
Criminal law. Section 391 makes it an offence to knowingly obtain, communicate, or make available a trade secret by deceit, falsehood, or other fraudulent means, with a maximum penalty of 14 years where prosecuted by indictment. It also reaches someone who receives a secret knowing it was obtained through that offence. Independent development and reverse engineering are expressly excluded. The provision is useful to know about, but a police investigation is not a substitute for a civil remedy, since the police decide what to pursue and they cannot get your information back quickly.
Non-Competes Will Not Do This Job
Many Ontario business owners assume that a non-compete clause protects their secrets. Since October 25, 2021, the Employment Standards Act, 2000 has prohibited employers from entering into non-compete agreements with most employees, with narrow exceptions for certain executives and sales of a business. Confidentiality and non-solicitation terms remain available, and a confidentiality obligation is frequently the more useful of the two, because it targets exactly what you want to protect instead of stopping someone from working.
Do be careful with how they are written. A confidentiality clause so broad that it effectively prevents someone from working anywhere in the industry might be challenged as a non-compete by another name. Listing general categories along with examples of what the company treats as confidential tends to work better than saying “all information of any kind.”
Reasonable Efforts in a Small Business
The word “reasonable” is helpful here. Nobody expects a family bakery in Bramalea to run like a defence contractor. The question is whether you took steps that made sense for your size and the value of the information. Those steps also provide evidence if you ever have to go to court, since a judge will ask what you did to keep this secret before the dispute arose.
Start by making a list. You cannot protect what you have not identified. Spend an hour with your senior people and write down the ten or twenty things that would really hurt in a competitor’s hands. Then work through the following.
Limit access. Keep your most valuable data on a need-to-know basis. Your payroll clerk does not need the pricing model, and a part-time warehouse worker does not need the full customer list. Modern cloud systems make this fairly simple, and the permission settings themselves become useful evidence.
Split the secret. Where you can, avoid giving any one person the whole picture. A food producer can supply premixed blends under codes, so staff handle Ingredient C without ever seeing the complete formula.
Label sensibly. Mark truly confidential documents as such. If everything is stamped “confidential,” including the lunch menu, the label stops meaning anything.
Lock down the exits. Think about personal email forwarding, USB drives, personal cloud accounts, and phone photographs. A policy on these, along with basic logging, can both discourage misuse and show what happened. Ontario employers with 25 or more employees must also have a written electronic monitoring policy, so make sure any monitoring you use matches what that policy says.
Watch new technology. Pasting a supplier contract or customer list into a public artificial intelligence tool may mean disclosing it to a third party on terms you have not read. Set a clear rule about what can go in, and which approved tools may be used.
Visitors and contractors. Factory tours, cleaners, IT vendors, and outside bookkeepers may all see more than you realize. Use a short NDA where it makes sense, and keep tours away from sensitive processes.
Disclosure You Cannot Avoid
Every business has to share secrets sometimes. How you do it makes a difference.
When selling a business or bringing in an investor, sign an NDA before you open the books, and release data in stages. Early conversations can use anonymized customers and summary figures. Only near closing, with a committed buyer, does the full customer list come out. The purchase and sale of businesses process usually involves this kind of staged due diligence. Remember that a competitor can be a sincere buyer and also a person gathering intelligence.
With manufacturers and suppliers, including those overseas, a contract should say who owns improvements, what happens to tooling and files, and what law applies. Enforcing confidentiality in another country can be slow and expensive, so disclosure is often best limited to what is actually needed.
Patents involve a different choice. A patent grants exclusive rights for a limited time but requires public disclosure of the invention. A trade secret can last indefinitely, but it offers no protection against someone who independently develops the same thing. Having an adviser compare the two before publishing is wise, since disclosure can affect patent rights. Our intellectual property page deals with the other forms of protection.
Hiring and Departures
Two moments in the employment cycle carry most of the risk.
At hiring, put confidentiality and ownership of work product into a written contract signed before the job starts. Changing the terms for an existing employee generally requires fresh consideration, meaning something of value in return. Also tell new hires in writing not to bring secrets from a former employer. Hiring someone who arrives with a competitor’s customer list can make you the defendant.
At departure, plan the routine in advance:
- Cut system access at the appropriate moment, sometimes before the announcement
- Collect laptops, phones, keys, samples, and paper files
- Have the employee confirm in writing that company information has been returned or deleted, including from personal devices and accounts
- Send a measured reminder of continuing obligations
- Preserve the person’s email and access logs before any device is wiped and reissued
That last point is often missed. Resetting a laptop for the next hire can destroy your best evidence.
When Something Has Gone Missing
If you suspect a former employee or partner has taken information, the first few days matter. Stay calm, and avoid sending an angry email to the person or to their new employer, since a careless accusation can create problems for you.
Preserve the evidence: logs, devices, and communications. Consider having a forensic specialist look at them instead of allowing your own IT person to start clicking through a laptop, because that can change the metadata. Write down what is missing, why it is confidential, what protections were in place, and how you learned about it. Quantify the harm where possible, such as lost customers or lost bids.
Then get advice on remedies. They may include:
- A cease-and-desist letter demanding return of the information and an undertaking
- A motion for an interlocutory injunction, requiring strong evidence and usually an undertaking to pay damages if you are later found to have been wrong
- In rare and serious cases, an Anton Piller order permitting a supervised search and preservation of evidence, granted only with strong evidence and on strict conditions
- A claim for damages or an accounting of the profits made from the misuse
- A report to Peel Regional Police if the facts suggest a crime
Delay can seriously weaken a request for an injunction, since a court might wonder how urgent the problem really is if you waited for months. The basic limitation period in Ontario’s Limitations Act, 2002 is also generally two years from when a claim is discovered. Court files are generally open to the public as well, so ask early how your secret can be protected during the case, because a sealing order is not automatic.
A Modest Place to Begin
You do not need a large program to start. Name your secrets, reduce who can see them, get signatures on a clear confidentiality agreement, and adopt a routine for departures. These steps are inexpensive and most can be done within a month. If you would like your agreements reviewed or are worried that something has already left the building, you may contact the firm. Early advice tends to be much cheaper than asking a court to put the genie back in the bottle.