A confidentiality agreement is a type of contract in which the signing party agrees to refrain from disclosing any information about the other party in the contract. Confidentiality agreements are also referred to as non-disclosure agreements or secrecy agreements. Such agreements are often part of employment contracts. Employers will require their employees to sign such an agreement promising not to disclose specific information about the workplace.

While confidentiality agreements are also used in business settings, they are often referred to as non-disclosure agreements. Businesses or companies use confidentiality agreements for a variety of reasons, such as:

  • Protecting sensitive, technical, or commercial information from disclosure;
  • Preventing the forfeiture of valuable patent rights;
  • To define exactly what information can and cannot be disclosed;
  • Protecting trade secrets;
  • Protecting financial information or inside information that is not available to the public; and/or
  • Preventing former employees from giving out private company information after their employment term.

In most cases, it is the employer who is requiring the employee to sign a confidentiality agreement. An example of this would be how the employer may be asking the employee not to disclose company trade secrets, or not to discuss information regarding company stock.

Confidentiality agreements commonly form part of the employment contract that is signed upon hiring. In other instances, the employer may present the employee with a confidentiality agreement as the need arises for later projects.

What Do California Employment Confidentiality Agreement Laws Cover?

Employment confidentiality agreements are commonly utilized in an employment law setting. An example of this would be how an employer may require a new employee to sign a confidentiality agreement. This agreement may state that the employer will keep the following company information confidential:

  • Machinery used;
  • Technological developments;
  • Secret processes;
  • Future plans;
  • Materials or ingredients used;
  • Prices;
  • Data and formulas; and
  • Employee work product.

Whether employment confidentiality agreements are enforceable differs on a state by state basis. In California specifically, non-disclosure agreements are generally recognized as enforceable. However, such agreements must be drafted in a very specific way. In fact, failure to do so would render the agreement unenforceable.

To be considered properly drafted in California, an employment confidentiality agreement would need to meet the following elements:

    • Clear identification of all parties involved in the agreement, such as the employer and employee;

 

    • A specified amount of time in which the agreement is to be enforced;

 

    • Related, the amount of time specified must be reasonable, as a judge would rule an agreement containing an unreasonable time frame as unenforceable;

 

    • A detailed definition of what is to be covered by the agreement, such as secret processes;

 

    • Clear explanation of what the employee’s obligations are in terms of keeping the information confidential; and

 

    • Clearly defined terms regarding what is not covered by the employment confidentiality agreement.

 

How Are Employment Confidentiality Agreements Enforced in California?

As previously mentioned, in California, employment confidentiality agreements are considered to be enforceable when they contain specific information. Generally speaking, enforcing a confidentiality agreement is the same as enforcing any other sort of contract. Both parties will be legally bound to the terms contained within the agreement once they sign the document. 

Violations of breaches of a confidentiality agreement can result in various legal penalties, such as a monetary damages award if the breach causes financial losses. This would be a common response to civil matters such as breach of contract.

Additionally, an employment confidentiality agreement may include a clause to the effect of how the agreement is to be enforced. An example of this would be how the confidentiality agreement may include a no-litigation clause. What this means is that the parties must seek mediation or some other form of alternative dispute resolution measures, as opposed to seeking out litigation.

The specific consequences of breaching a confidentiality agreement will depend on the agreement itself. This is because a well-written contract will state the speaking punishment for violations. So long as the punishment stated within the agreement is not considered to be excessive in comparison to the standards created by the law, the punishment will be enforced. If no such clause exists, a court may determine the appropriate course of action.

Are There Any Special California Laws or Provisions Regarding Employment Confidentiality Agreements?

Under California law, the following may be protected by an employment confidentiality agreement:

  • Proprietary information such as recipes;
  • Trade Secrets;
  • Prototypes;
  • Other such technology that has not yet been registered for a patent;
  • Customer or client lists; and
  • Contact information for clients, vendors, etc.

Trade secrets especially must meet very specific criteria in California. Generally speaking, a trade secret is defined as valuable information that gives a business a competitive edge over other businesses. This “information” can be a:

  • Formula;
  • Pattern;
  • Compilation;
  • Program;
  • Device;
  • Method;
  • Technique; or
  • Process.

More specifically, a trade secret includes the following three elements:

  1. The information is not known to the public;
  2. The information is economically beneficial to the holder; and
  3. The information holder makes a reasonable effort to maintain its secrecy.

In order for an employment confidentiality agreement to enforceably cover trade secrets in California, it must be valuable due to the very reason that it is completely unknown to the general public. Additionally, reasonable efforts must be made in order to ensure secrecy. By California standards, an employment confidentiality agreement would not be considered enforceable if the agreement simply claims to prohibit the sharing of any information involving trade secrets. The document must also show that a trade secret actually exists by California law’s definition.

Finally, California prohibits employment confidentiality agreements that intend to prevent an employee from speaking about anything related to the employer or business in general. There must be some defined, reasonable limitation of scope.

What Else Should I Know About Employment Confidentiality Agreements?

There are some legal exceptions to employment confidentiality agreements that should be kept in mind. Confidentiality agreements may be legally violated if revealing the protected information would aid in an investigation or criminal case. Employment confidentiality agreements are only binding between the parties which signed the agreement. 

What this means is that if a third party outside of the agreement reveals the protected information to the public, the information is no longer considered secret. As such, the parties to the employment confidentiality agreement are released from their obligations as detailed in the agreement document. Finally, if the information were independently developed or discovered by a party to the agreement, then the agreement would not be violated.

Regarding general agreement enforcement, there are several issues that determine whether a confidentiality agreement is enforceable. Some examples include:

    • As with any other type of contract, confidentiality agreements require consideration to be valid. What this means is that the employee must receive something in return for their promise to maintain confidentiality. When the employment confidentiality agreement is made at the time of hire, the job itself can serve as this consideration. However, if the agreement is made during employment, something else is needed from the employer to serve as consideration;

 

    • As previously discussed, most courts require any employment confidentiality agreement to be “reasonable.”  In order to determine reasonableness, in addition to what was already mentioned, courts will look at issues such as:
        • The interests of the employer in keeping the information secret;
        • The amount of time in which the information must be kept secret;
        • The specific burden on the employee; and
        • The best interests of the public as applicable.

       

    • Employment confidentiality agreements also may not be enforceable against a subpoena. 

 

An employer can never legally ask an employee to keep company violations confidential, no matter what their agreement contains. The employee may face legal consequences if they fail to report company violations or illegal activity to authorities. As such, a confidentiality agreement that asks an employee not to report employer violations will be considered invalid and therefore unenforceable.

State and federal whistleblower laws dictate that an employer cannot fire an employee who files a valid complaint or violation with legal authorities. This means that an employer cannot fire an employee out of retaliation for uncovering a violation. However, employees are also prohibited from filing false or frivolous claims against their employers.

Should I Hire a California Lawyer for Help With an Employment Confidentiality Agreement?

Employment confidentiality agreements can help protect a business against unauthorized disclosures of information. However, an agreement could quickly become unenforceable or illegal, especially as state laws differ on the matter. 

If you are in California and you need help drafting, reviewing, or negotiating an employment confidentiality agreement, you should consult with a California employment lawyer. An experienced and local employment attorney can provide you with legal advice regarding the confidentiality agreement. Finally, an attorney can also represent you in court as needed.