Photo of Eric C. Kastner and Thomas T. Kim

Representing Individuals
and Business Worldwide
Since 1976

California Law Limits How Employers May Restrict Competition

Kastner Kim LLP

In the United States and beyond, competition among businesses is prized as a critical force that drives progress and benefits consumers. As a result of that deeply held value, the American legal system is generally intolerant of attempts to limit competition on a large or small scale.

This is particularly true in California, where the laws regarding non-compete agreements are unusually strict, and nearly all such agreements are considered invalid. Under state law, only equity stakeholders in a company can be bound by non-compete agreements. The consequences of the state’s favorable policy toward business competition can perhaps be most acutely observed in Silicon Valley, where the quickly evolving tech industry is fueled by a highly skilled and highly mobile workforce.

Non-Disclosure Agreements In California

Although California law limits the use of non-compete agreements, many businesses still have a need to safeguard their investments and prevent workers from taking confidential information with them when they leave the company. Often, this is accomplished through a different type of employment contract called a non-disclosure agreement, which is also called a confidentiality agreement.

Whereas a non-compete agreement explicitly limits where an individual may work, a confidentiality agreement merely restricts what information he or she may share with other parties. Thus, a non-disclosure agreement can be used to prevent an employee, contractor or other individual from disclosing confidential information obtained through the company, such as:

  • Trade secrets
  • Recipes and formulas
  • Inventions and prototypes
  • Client lists
  • Business strategy
  • Manufacturing processes

Because a non-disclosure agreement does less to restrict an individual’s future employment and business prospects than a non-compete agreement, it is more likely to be enforceable under California law. However, while the California courts take a more favorable view of non-disclosure agreements, there still are limits to what they may entail.

In order to be enforced by the courts, a non-disclosure must be clear and specific regarding the scope and nature of the protected information, and it must be supported by a legitimate business need. It must also clearly differentiate between confidential and non-confidential information. In other words, a confidentiality agreement may not simply place a blanket restriction on any and all disclosures by the individual, though it is not uncommon for companies to attempt to do so. An overly broad non-disclosure agreement may be invalidated if it is challenged in court.

Get Legal Advice Before You Sign

Before signing a non-disclosure agreement or any other type of employment contract, it is important to get advice from an attorney with a background in matters of California employment law to make sure your rights and interests are well protected. Contact Kastner Kim LLP to arrange a personalized consultation.

Kastner | Kim LLP | Attorneys At Law

Contact Us