Restrictive covenants are an important contractual tool for modern businesses. They limit the risk of employees damaging a company after the employment relationship ends. California is among the states that have imposed a widespread noncompete agreement ban. Employers typically cannot force workers to sign agreements that prevent them from taking a job in the same industry or starting a competing business.
Companies may want to protect themselves using nondisclosure agreements instead. Yet, California has recently adjusted its policies on these popular confidentiality agreements. Can employers still have workers sign nondisclosure agreements and enforce them in court if necessary?
The law does not prohibit nondisclosure agreements
Unlike employment-related noncompete agreements, confidentiality or nondisclosure agreements are not subject to a sweeping rule prohibiting them in California. Instead, the law now restricts their use to prevent employers from abusing nondisclosure agreements to hide company or executive misconduct.
After widespread reports of the abuse of nondisclosure agreements to stifle complaints about workplace sexual harassment and similar misconduct, California lawmakers enacted rules restricting the use and enforcement of non-disclosure agreements. Companies can enforce agreements that protect trade secrets and proprietary company information.
They cannot enforce agreements intended to prevent workers from publicly discussing misconduct in the workplace or reporting their concerns to regulatory authorities. Provided that the language of the agreement is appropriate and the agreement addresses the company’s non-public information, rather than claims of misconduct, it may still be possible to not only execute nondisclosure agreements with employees but to enforce the agreements in court.
Nondisclosure agreements remain a powerful tool for modern employers in California. Working with an attorney while drafting new employee contracts or reviewing them for enforcement litigation can help organizations limit the harm of employee misconduct.