Shipbuilding: How American Secrecy Requirements Affect Your Business

January 17, 2013

Irving Shipbuilding Inc.’s successful bid to build 21 combat ships in Halifax for the Government of Canada brings significant opportunities for businesses in Canada and around the world. Any business interested in taking part in this major project must be familiar with how the sensitive nature of the information involved will affect its own obligations and the relationships it has with its employees.

It is expected that building ships for the Department of National Defence will involve extensive use of sensitive technical information. The Canadian and United States governments impose complex obligations on private businesses dealing with US-produced military and related components. Those obligations should be incorporated into employment contracts to ensure compliance with the laws governing the use of both unclassified and classified American information.

1. Requirements for the Use of Unclassified Data

The governments of Canada and the United States operate a Joint Certification Program which regulates contractors’ access to unclassified technical data disclosing critical technology controlled by each country’s Department of Defence. Contractors must be certified under the Joint Certification Program to be eligible to bid on or receive a contract involving access to this type of technical information.

Contractors applying for certification must certify that no person employed by it or acting on its behalf who will have access to unclassified technical data:

• is barred, suspended or ineligible to perform work on Canadian or United States Government contracts;
• has contravened the export control laws of the United States;
• has contravened the export control laws of Canada; or
• has had a certification revoked under the Joint Certification Program.

Contractors wishing to be involved in the shipbuilding project must ensure that their employees meet the four requirements and should put employment contracts in place which make termination the result of non-compliance.

Contractors should also ensure that the substance of their employment contracts reflects the special rules around the handling of unclassified technical data. Contracts should prohibit the disclosure of technical data, should limit the use of technical data for described purposes and should impose on the employee a clear duty to use care in the handling, use and return of the data.  Both contractors and employees must be aware of and comply with the specialized rules for the disposal of certain types of unclassified technical data.

2. Requirements for the Use of Classified Data

The United States National Industrial Security Program governs access to classified US information by private businesses and must be taken in to account when hiring employees for the shipbuilding project.  The Program requires that every individual who will have access to classified information undergo a security clearance. In general, only US citizens are eligible for a security clearance. Non-US citizens may be granted a Limited Access Authorization in compelling circumstances.  Those circumstances are generally limited to those in which a US citizen is not readily cleared or clearable to fulfill the duty. This provision of the Program directly impacts any business which plans to employ non-US citizen(s) to perform work in Canada that involves US classified material.  Letters of offer and employment contracts should make employment contingent upon obtaining and maintaining the required level of security clearance.

The National Industrial Security Program goes beyond the requirement for security clearances to impose several other obligations on businesses.  Those businesses, in turn, should ensure that their obligations are reinforced by specific reference in all their employment contracts.  Although too lengthy to list here, the obligations require, for example, that employees participate in ongoing security briefings and training and that they sign a formal ‘Classified Non-Disclosure Agreement’.

The laws regarding regulating use of unclassified and classified US information are important considerations when hiring employees for the shipbuilding project. Employment contracts should be carefully drafted to protect your business’s interests and to ensure compliance with your legal obligations. Cox & Palmer’s lawyers are available to advise you on the impact of the American secrecy requirements and to meet all of your labour and employment needs.

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