Confidentiality Clause Does Not Shield Employee from Answering Questions About Employer in Securities Investigation, Court Rules

Written on behalf of Peter McSherry
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In employment agreements, a confidentiality clause or agreement is generally used to prohibit an employee from disclosing or profiting from proprietary information related to the employer’s operations.

In a recent Ontario decision, the court ruled that an employee could not refuse to answer questions about an employer’s activities in a securities investigation by relying on a confidentiality clause. 

Employee Refuses to Answer Questions About Employer 

On March 2, 2020, the Ontario Securities Commission issued an order authorizing an investigation into whether the employer had engaged in conduct contrary to Ontario securities law.

On May 12, 2020, the Commission served one of the employer’s employees, who worked as an administrative assistant,with a summons requiring the employee to attend an examination on May 27, 2020, though the date was rescheduled to July 22, 2020. 

However, on July 10, 2020, the employee’s lawyer advised the Commission that the employee was unable to answer any questions because of a non-disclosure and confidentiality clause in the employment agreement that precluded the employee from discussing matters related to their employment.  The employee was concerned about termination or potential liability under the employment agreement.

The examination proceeded on July 22, 2020.  The employee only answered questions about their name, date of birth, contact information and education. The employee refused to answer any questions related to their employment, including the name of the employee’s current employer. 

On September 24, 2020, the employee filed an application with the court seeking directions, as well as:

  • a declaration determining whether the summons supplanted any contractual confidentiality obligations the employee may owe, and required the employee to attend the interview and testify; and 
  • a declaration that the employee would not breach any private contract by testifying in the interview.

Additionally, the employee later raised a claim of privilege with respect to the information covered by the confidentiality clause.  

At issue was s. 13 of the Securities Act, which reads:

Power of investigator or examiner

13 (1) A person making an investigation or examination under section 11 or 12 has the same power to summon and enforce the attendance of any person and to compel him or her to testify on oath or otherwise, and to summon and compel any person or company to produce documents and other things, as is vested in the Superior Court of Justice for the trial of civil actions, and the refusal of a person to attend or to answer questions or of a person or company to produce such documents or other things as are in his, her or its custody or possession makes the person or company liable to be committed for contempt by the Superior Court of Justice as if in breach of an order of that court. 

Rights of witness

(2) A person or company giving evidence under subsection (1) may be represented by counsel and may claim any privilege to which the person or company is entitled.

Court Rules That Employee Must Answer Questions

At the outset, the court found that under s. 13 of the Act the employee was required to answer the Commission’s questions and refusal to do so exposed the employee to a finding that they were in contempt of court, stating:

“The [employee] was not entitled to refuse to answer any questions or seek further orders or directions based on concerns the [employee] had about the Confidentiality Clause or any employment-related consequences, absent a claim of privilege.” 

However, the court further stated that once the employee had claimed privilege under s. 13(2), the employee was entitled to have that claim decided by the court. 

Noting that the employee had claimed case-by-case privilege, which the employee argued should extend to all of information covered by the confidentiality clause, the court explained: 

“Case-by-case privileges, unlike class privileges, do not carry a presumption of inadmissibility. Instead, the Court will consider, in any given case, whether a case-by-case privilege should be recognized, with reference to the four “Wigmore criteria”, as adopted by the Supreme Court of Canada in Slavutych v. Baker:

a.      The communications must originate in a confidence that they will not be disclosed. 

b.      This element of confidentiality must be essential to the full and satisfactory maintenance of the relation between the parties.

c.      The relation must be one which in the opinion of the community ought to be sedulously fostered.

d.      The injury that would inure to the relation by the disclosure of the communications must be greater than the benefit thereby gained for the correct disposal of litigation.”

Applying the Wigmore criteria to the employee’s case, the court first stated:

“[W]hile an employer can expect that an employee will adhere to its contractual obligations to maintain confidentiality, it cannot possibly expect that the employee will maintain that confidentiality in the face of a summons issued by the [Commission] pursuant to its statutory powers under s. 13 of the Act. To hold otherwise would encourage an employer to deliberately exclude the language “except for disclosure required by law” from the confidentiality provisions in an employment agreement, in order to insulate the employer from investigation by securities regulators.  I cannot accept that position. The [employee] has failed to meet the first Wigmore criterion.”

With respect to the second Wigmore criterion, the court found that there was no evidence to establish that the element of confidentiality was essential to the full and satisfactory maintenance of the relation between the employer and employee.

While the court held that third criterion of the Wigmore test had been met, as was conceded by the Commission, it found that the employee had failed to prove the fourth criterion, stating:

“There is no evidence that the exercise of this power has caused injury to those employer-employee relationships in the past nor has the [employee] tendered any evidence that being compelled to answer [Commission]’s questions will cause injury to the [employee]’s employment relationship in this case. The potential injury of compelled disclosure in [an] interview to the employer-employee relationship is not grounded in any evidence before the Court and is entirely speculative.”

As a result, the court held that the employee was not protected under case-by-case privilege and the employee’s testimony could be compelled pursuant to the s. 13 summons. The employee’s application was therefore dismissed.

Get Help

Unlike lawyers who work for employers and employees, Peter A. McSherry has almost 20 years of experience and specializes exclusively on representing individual employees. He and his knowledgeable team of legal professionals in Guelph will work with you to help you understand the applicable laws, your rights, and your chances for success in seeking fair and just compensation in wrongful dismissal, constructive dismissal, workplace harassment, union worker options and many other employment law issues.

Contact the offices of Guelph employment lawyer Peter McSherry. We regularly assist employees with employment and labour issues. Contact us by phone at 519-821-5465 or by e-mail to schedule a consultation.