Trade secrets are non-public information that provide a company with a competitive advantage. Trade secrets can include vendor or client lists, special recipes and other unique information that affects how a company manufactures products or provides services to the public.
Employees are one of the biggest concerns for those hoping to protect trade secrets and continue to capitalize on them. Workers can sell information to competitors, start their own competing businesses or disclose trade secrets on social media. Some professionals intentionally release trade secrets, possibly out of bitterness after a termination.
Companies have long relied on employment contracts to protect against worker misconduct. Restrictive covenants are a popular tool for preventing workers from undermining a company’s success and leaking trade secrets to others.
Are restrictive covenants from employment contracts still enforceable in California?
Different rules apply to specific types of agreements
California limits the use of restrictive covenants in employment contracts more than other states or the federal government. Specifically, the state has effectively prohibited noncompete agreements and other clauses intended to limit an employee’s career mobility after the end of an employment arrangement.
Even if a worker signed a contract with a non-compete agreement, the employer typically cannot enforce the agreement and may violate state laws if the company attempts to legally enforce the contract.
There are also restrictions on nondisclosure or confidentiality agreements. State lawmakers have enacted rules that prevent their enforcement in cases where the reason for the agreement is harassment, abuse or other forms of illegal conduct toward an employee.
However, nondisclosure or confidentiality agreements that specifically protect trade secrets and other forms of intellectual property are theoretically enforceable. If workers try to release or monetize trade secrets while working for a company or while still subject to a non-disclosure agreement, then the former employer may have grounds to take legal action in response to that breach of contract.
Enforcing restrictive covenants to protect a company’s intellectual property can be a complicated process. Business leaders concerned about trade secret infringement may need help reviewing existing employment contracts, modernizing contract language and preparing to take legal action after a documented breach of contract occurs. While restrictive covenants are subject to many limitations in California, employers can still sometimes enforce them in specific situations.