Confidentiality agreements, in the employment context, prevent employees from using or disclosing confidential information of the employer. These agreements are also sometimes called nondisclosure agreements. They may be an agreement in and of themselves, or they may be part of a larger agreement that includes other topics.
California law generally provides that any agreement that attempts to prevent someone from “engaging in a lawful profession, trade, or business of any kind is to that extent void.” There are very narrow exceptions to this law that involve, for the most part, transfers of interests in businesses.
California law also contains a prohibition against the misappropriation of trade secrets. Trade secrets are defined to include only certain information that has independent economic value and that is subject to reasonable efforts to keep it secret. The term “trade secret” has a very specific, legal meaning. It cannot be applied to just any type of information that an employer might consider to be confidential.
If a confidentiality agreement attempts to restrain an employee in a way that violates either of these laws, it is considered to be against public policy and will not be enforced by a court.
What does all of this mean for California employees and job applicants? It means that they cannot be made subject to confidentiality agreements except under very limited circumstances. Here are a few examples of improper employer conduct based on confidentiality agreements:
- refusing to hire a job applicant who will not sign a confidentiality agreement that is in violation of public policy;
- firing an employee for refusing to sign such an agreement; and
- interfering with a former employee’s job by asserting that the provisions of such an agreement apply.
If an employer does any of these things, it may be sued and could be required to pay money damages.
In addition to California law, a host of federal agencies sometimes challenge the legitimacy of confidentiality agreements, including the Securities and Exchange Commission, the National Labor Relations Board, and the Equal Employment Opportunity Commission. Recently, all of these agencies have filed enforcement actions against employers for alleged confidentiality-related offenses.
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