How co-working spaces expose companies to new legal risks

This article originally appeared on the Globe and Mail website.

How co-working spaces expose companies to new legal risks

Sharing office space with other companies and entrepreneurs can be an attractive option for growing businesses, but experts warn this setup, known as co-working, comes with risks.

“The big one that always comes to mind is privacy and confidentiality,” says Jordan Kirkness, a lawyer at the Toronto office of international law firm Baker McKenzie.

Privacy law in Canada is a complex patchwork that varies from province to province and all too often, Mr. Kirkness says, it’s overlooked.

“It only exacerbates the problem when you’ve got your employees working in a work space that they share with other businesses,” says Mr. Kirkness, who specializes in labour and privacy law. “The potential for passing personal information, confidential information, on to the wrong person is just so much greater.”

A data breach could happen, for example, if a USB key containing unencrypted data is misplaced, or a phone conversation is overhead by a neighbour.

Co-working and other types of flexible office space are growing in popularity. Between 2014 and 2019, flexible office space providers increased their footprint in Canada by 303 per cent, according to a report released in October by real estate company CBRE.

Co-working “solves a number of different challenges that we see with entrepreneurs,” says Kayla Isabelle, the managing director of Startup Canada, an industry group.

Entrepreneurs often feel alone as they’re starting out, she says, and traditional offices can be expensive.

But some of the things that make co-working spaces attractive to young startups can become issues as a company expands, says Andrew Browne, a Calgary-based entrepreneur who has worked on multiple ventures that operated out of co-working spaces.

As Mr. Browne’s last business grew from being “one or two people who really needed to get out of their basement and interact with other people on a regular basis” to a team of eight, he says, working alongside other companies and entrepreneurs started to become a distraction.

Mr. Browne says his digital-ticketing startup took steps to ensure private data were stored securely, but privacy was still a concern.

“It’s kind of like if you’re living in a one bedroom apartment with two or three other people, it’s not that you’re necessarily trying to hide anything very specific, but you just feel very uncomfortable,” says Mr. Browne, who currently works as a program director with the Calgary Innovation Coalition, an organization that supports entrepreneurs and startups.

Working out of a non-traditional office environment can also make it more challenging for businesses to abide by some labour standards, Mr. Kirkness says. While many types of businesses face issues around contract workers, the lines can get blurrier when freelancers and employees work together in shared offices for startups, with both groups using their own computers and phones.

“When people are co-working, it’s pretty hard to track their time and hours of work and overtime standards often get overlooked,” he says.

While the ability to talk with other entrepreneurs may be one of the benefits of working out of a co-working space, Jim Holloway, a senior partner at Baker McKenzie’s intellectual property group, says that entrepreneurs have to be careful about what they say.

“It’s just human nature. You get caught up with someone who’s equally creative, equally innovative, full of enthusiasm, keen to help,” Mr. Holloway says, “and in those conversations, there’s always a risk that you think back about it an hour later and say, ‘I wish I hadn’t said that.’ And even if they’re not going to quote-unquote ‘steal’ it and use it, if it’s interesting they’re going to tell someone else.”

Intellectual property protections don’t apply to trade secrets, customer information and ideas, he says.

“While an idea might lead to something that ultimately could be patented,” Mr. Holloway says. “Until it gets there, it’s just an idea and if you share it, other people are entitled to use it.”

There’s also the risk that the ability to obtain a patent could be lost – once an idea is disclosed, the inventor only has a year to file a patent application.

In the United States, some co-working spaces and business incubators require businesses using the space to sign non-disclosure agreements, but Mr. Holloway says he’s not aware of any doing that in Canada.

That doesn’t mean operators of co-working spaces aren’t aware of the issues.

“When we’re looking at a company coming in, we talk to them about what their requirements are,” says Nina Gazzola, vice-president at MaRS Centre in Toronto, which has several different types of office space. “Do they need to have dedicated privacy, or can they just have access to occasional privacy?”

But Mr. Holloway says companies need to be careful.

“You know the old saying walls have ears? Well, that’s true and it’s even worse when there are no walls,” Mr. Holloway says.


JACOB SEREBRIN Updated: January 6, 2020