Verifying Trade Secret and Confidentiality Protections Before Buying an Ontario Business

Some of what you're paying for in a business purchase never appears on a public registry anywhere. A supplier list built over a decade. A pricing formula. A manufacturing process nobody else has quite replicated. These are trade secrets — and unlike a trademark or a patent, there's no government office to check whether they're "registered" or valid. Their legal protection depends entirely on whether the business actually treated them as secret.

That makes trade secret due diligence a different exercise than most other legal checks in a business purchase. You're not confirming a registration exists; you're confirming a habit of confidentiality actually existed — and figuring out whether it will survive the sale itself.

What Actually Protects a Trade Secret

Trade secret protection in Canada comes from common law, not from a registration system. In general terms, information is more likely to be protected as a trade secret where:

• It genuinely isn't known publicly or easily discoverable by others in the industry
• It has real value to the business precisely because it isn't known to competitors
• The business took reasonable, active steps to keep it confidential

That last point is where due diligence matters most. Information a business treated casually — shared freely with staff, printed on documents with no confidentiality marking, discussed openly with suppliers — is much harder to protect legally, no matter how valuable it might be commercially.

What to Look For in Due Diligence

• Written confidentiality and non-disclosure agreements with employees, contractors, and any outside parties who had access to sensitive information
• Access controls — was sensitive information (recipes, formulas, client data, pricing models) restricted to specific people, or generally accessible to anyone on staff?
• Marking and handling practices — were documents or files identifying the information as confidential, or treated the same as any other business record?
• History of past disclosures — has any of this information already been shared with a competitor, a former employee, or the public in a way that could undermine a claim it was ever kept secret?
• Departing-employee history — has a former employee ever left to work for a competitor, and if so, what agreements (if any) governed what they could take or use?

Protecting Know-How Going Forward, After the Sale

Buyers sometimes assume they can simply have key people sign a broad non-compete after closing to lock down the business's know-how. That's more limited than it used to be: general employee non-compete agreements have been prohibited under Ontario's Employment Standards Act, 2000 since October 25, 2021, with only narrow exceptions — most relevantly, where a seller becomes an employee of the purchaser as part of the business sale itself, and separately for certain senior executive roles.

Non-solicitation and confidentiality agreements are a different tool, and remain generally enforceable, subject to ordinary reasonableness limits at common law. This is often the more realistic route for protecting a business's trade secrets and client relationships after a sale — restricting a departing owner or key employee from soliciting clients or disclosing confidential information, rather than trying to stop them from competing outright.

Trade Secret Due Diligence Checklist

• [ ] Identify the specific information that gives the business a competitive advantage
• [ ] Confirm it isn't already public or freely known in the industry
• [ ] Review confidentiality and non-disclosure agreements with employees and contractors
• [ ] Check whether access was actually restricted in practice, not just on paper
• [ ] Ask about any past disclosures, leaks, or departing employees who joined competitors
• [ ] Plan non-solicitation and confidentiality protections for key people going forward, rather than assuming a non-compete will cover it

Frequently asked questions