NDAs in California: 5 Things You Should Know

When your employer first hired you, they may have asked you to sign a Non-Disclosure Agreement (NDA). An NDA is a way for businesses to protect the trade secrets that give them a competitive edge. It does so by restricting the types of information employees can and can’t share with outside parties.

Now, I love sharing what I’ve learned to help others, especially when it comes to investing. But those are my secrets to share. So, I understand wanting to prevent competing businesses from learning those secrets before I choose to make them public.

And, with California being a hub for the tech industry, work-related NDAs are commonplace here.

If you’ve recently left your employer, you might wonder how your NDA continues to affect you. While some details vary depending on your specific contract, it’s likely that its terms still apply to you well after your employment has ended.

And that means violating it could still have consequences!

So I’ve put together a broad overview to help you understand what a California NDA entails.

What is an NDA?

An NDA is a contract that restricts the sharing of sensitive information. It establishes a relationship where the signees can share information with each other but face legal consequences for sharing it with outside parties. NDAs typically outline both what information the agreement covers and the consequences for breaching the contract. NDAs are also sometimes referred to as “confidentiality agreements.”

NDAs are common for establishing business relationships because they allow organizations to protect their trade secrets and other confidential information. For instance, a company that produces a food or beverage using a “secret recipe” might ask their employees to sign an NDA preventing them from leaking or sharing any part of that recipe, such as secret ingredients, specific steps taken, or proprietary cooking methods.

Top 5 Things to Know About NDAs in California

As contracts, NDAs can feel purposefully complex and incomprehensible. Even worse in California—where, for some reason, many businesses love using as many big words as possible. While a contract lawyer can help you dissect the specific nuances of your NDA, here are a few things that can help you better understand what an NDA is, what it contains, and how it might affect you.

1. NDA vs. Non-Compete

First, it’s essential to understand the difference between an NDA and a non-compete agreement. While related, they’re two different methods of protecting confidential business information from reaching competitors or becoming public knowledge.

An NDA specifically prevents the signee from disclosing confidential information to outside parties. A non-compete agreement typically states that, should you leave the company, you agree not to work at a competing business for a specified time. Doing so could inadvertently introduce your former employer’s business secrets and procedures to your new employer simply by falling into old work habits.

In other words, NDAs prevent knowledge leaks by addressing the sharing of confidential information itself. Non-competes prevent former employees from taking knowledge with them (purposefully or not) to a new employer.

2. What makes an NDA enforceable in California?

To enforce an NDA in California, it needs to be specific and intentional. That means it needs to be clear about its restrictions, who it affects, and how. An enforceable NDA in California should typically include the following:

• The specific parties involved
• Specifics about who owns the information
• Which information is restricted—and which isn’t
• The NDA’s goals—i.e., why the information needs protecting
• The receiving party’s responsibilities regarding handling the information (such as not disclosing it, not destroying it, etc.)
• The term length of the agreement, if applicable
• The consequences for breaching the contract

3. What happens if you violate an NDA?

Violating an NDA is not technically illegal. However, breaching a contract such as an NDA leaves you open to litigation and penalty fees. Most often, the entity that owns the information will file a lawsuit that seeks restitution for financial losses and a court order to prevent you from continuing to disclose information.

Please note that disclosing confidential information and sharing other intellectual property with direct competitors can be a criminal offense that results in jail time even without an NDA.

4. How long does an NDA last?

The time limits associated with an NDA can vary depending on the type of NDA or the terms outlined within it. If the NDA denotes a specific time frame, such as three years, five years, or longer, that becomes its legal term length.

In some cases, the evolution of the protected information can alter the terms. For instance, if the protected information becomes known to the public or otherwise loses its value for competitors, it might no longer be covered by the NDA.

Alternatively, the information might lose its value by becoming outdated, such as with a fast-moving tech company changing its products and methods every few years.

For specifics about the length of your own NDA, it’s best practice to consult a lawyer to look over the contract and offer advice.

5. What information isn’t protected by California NDA laws?

This is important: criminal acts are never protected by an NDA. Even if a business tries to prevent employees from disclosing information about unlawful acts in the workplace by using an NDA, it won’t hold up in court. This is important for protecting employees who want to do the right thing and speak up.

Over the last few years, California has passed several laws to protect its workers (such as the CalSavers retirement law). Last year, the state placed additional restrictions on how businesses can use NDAs—specifically, in court settlements. And recently, they’ve expanded those restrictions.

Previously, California employers could not use court settlements to restrict information leaks in cases of sexual harassment and sex-based discrimination. The expanded restrictions now prevent employers from including NDAs about any type of harassment or discrimination when offering settlements.

This law took effect on January 1, 2022.

Switching employers? Don’t forget your 401(k)!

NDAs aren’t the only hurdle to jump through once you’ve left your employer. If you signed up for a 401(k) through your work, leaving it with your former employer can have big consequences on your retirement.

As always, we recommend performing a 401(k) rollover. Not only can it help protect your retirement, but it can also prevent you from paying heavy tax penalties. It’s a simple process, but if you have any questions, please feel free to set up a free consultation.