A confidentiality agreement, often referred to as a non-disclosure agreement (NDA), is a legally binding contract between an employer and an employee. The primary purpose of a company getting an employee to sign a confidentiality agreement is to protect sensitive company information, trade secrets, business strategies, and other proprietary data from being disclosed to unauthorized parties.
In California, these agreements aim to balance the protection of a company’s legitimate business interests with the state’s public policy favoring employee mobility and open competition.
What Do California Employment Confidentiality Agreement Laws Cover?
California employee confidentiality laws establish the scope and limitations of confidentiality agreements. Typically, these laws allow employers to protect legitimate business information, such as manufacturing processes, customer lists, research and development details, and marketing strategies.
However, they also ensure that such agreements are not overly restrictive, preventing employees from seeking employment elsewhere or stifling competition.
How Are Employment Confidentiality Agreements Enforced in California?
In California, if an employee breaches a confidentiality agreement, the employer can take legal action against them. If the court finds the breach to be valid, it may award monetary damages to compensate for any financial loss the company incurred due to the breach.
Additionally, the court might issue an injunction to prevent further disclosure of the confidential information. The severity of the penalty often correlates with the gravity of the breach and the potential or actual harm caused to the company.
Let’s dive deeper into the concept of injunctions in the context of breaches of confidentiality agreements.
Injunctions in Breaches of Confidentiality Agreements
An injunction is a court order directing someone to do, or more commonly, to refrain from doing a specific act. In the realm of confidentiality agreements, an injunction usually serves to prevent an individual from disclosing or using confidential information. The goal of an injunction is not just to provide a remedy for a breach that has occurred but to proactively prevent further harm.
Types of Injunctions
Below are some of the types of injunctions used in regard to breaches of confidentiality agreements:
- Preliminary Injunction: Issued at the beginning of a lawsuit, this type of injunction aims to maintain the status quo until the court can decide on the case. If an employer believes there’s an imminent risk of a confidentiality breach, they may seek a preliminary injunction.
- Permanent Injunction: If, after hearing the case, the court determines that a breach occurred (or will occur if not prevented), it may issue a permanent injunction, which lasts indefinitely until the court lifts it.
Criteria for Granting an Injunction
Courts don’t grant injunctions lightly. Before issuing one, they consider:
- Irreparable Harm: The party seeking the injunction must prove that the breach would cause harm that cannot be adequately remedied by a monetary damages award alone.
- Likelihood of Success: The requesting party must demonstrate a strong likelihood of prevailing in the actual case.
- Balance of Equities: The court weighs the harm to the requesting party if the injunction isn’t granted against the potential harm to the opposing party if it is granted.
- Public Interest: The court may also consider the impact of granting or denying the injunction on the public at large.
Enforcement and Consequences of Violating an Injunction
If someone violates an injunction, they can face serious legal consequences, such as being held in contempt of court, which can lead to fines or even imprisonment. Violating an injunction can also damage the violator’s standing in the ongoing lawsuit and harm their reputation in the business community.
Limitations and Challenges
While injunctions are powerful tools, they have their limitations. Enforcing an injunction, especially against parties in different jurisdictions or countries, can be challenging. Additionally, while an injunction can prevent the direct release of information, it may be less effective if the confidential information is already widely disseminated.
In conclusion, injunctions play a crucial role in the enforcement of confidentiality agreements. They not only offer immediate relief to prevent further unauthorized disclosures but also serve as a deterrent, signaling the gravity of breaching such agreements. If faced with potential breaches or the need to understand or enforce an injunction, it’s always advisable to consult with a legal professional.
Are There Any Special California Laws or Provisions Regarding Employment Confidentiality Agreements?
Yes, California has specific provisions that differ from other states. Most notably, California’s stance on non-compete clauses is restrictive, and the state generally does not uphold them unless in very specific circumstances, such as the sale of a business. While this doesn’t directly relate to confidentiality per se, it’s intertwined because employers might use confidentiality agreements to circumvent non-compete rules.
California Business and Professions Code section 16600 prohibits any contract that restrains anyone from engaging in a lawful profession, trade, or business. This means that most non-compete clauses in employment contracts are invalid and unenforceable in California. However, this is unless they fall under certain exceptions, such as the sale of a business or the dissolution of a partnership.
California also has a statute that protects trade secrets from misappropriation by former employees or competitors. California Civil Code section 3426 defines trade secrets as information that derives independent economic value from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use.
It is also the subject of reasonable efforts to maintain its secrecy. Trade secrets can include formulas, patterns, compilations, programs, devices, methods, techniques, or processes.
California also has a law that limits the use of confidentiality provisions in settlement agreements involving claims of sexual harassment, sexual assault, or any other form of discrimination under the Fair Employment and Housing Act (FEHA). California Code of Civil Procedure section 1001 prohibits such agreements from preventing the disclosure of factual information related to the claim unless the claimant requests confidentiality.
The law also prohibits such agreements from waiving the claimant’s right to testify in an administrative, legislative, or judicial proceeding concerning alleged criminal conduct or sexual harassment.
This law was recently expanded by the Silenced No More Act (SB 331), which applies to any form of FEHA discrimination and also covers confidentiality and non-disparagement provisions in separation agreements.
What Are the Penalties for Breaching a Confidentiality Agreement?
Breaches of a confidentiality agreement can lead to severe consequences. In California, the aggrieved party may pursue monetary damages to recoup losses resulting from the unauthorized disclosure. These damages might include lost profits or any unfair advantage gained by competitors.
Additionally, if the information has not yet been disclosed, but there is an imminent threat of it, the employer might seek an injunction to prevent the employee from revealing the information.
What Else Should I Know About Employment Confidentiality Agreements?
While confidentiality agreements protect the employer’s proprietary information, employees also have rights. These agreements cannot prevent an employee from reporting illegal activities, workplace violations, or cooperating with regulatory agencies. Any clause in the agreement that seems overly restrictive or aimed at preventing an employee from seeking future employment can be challenged in a California court.
A California employment lawyer can guide you through the state’s laws and ensure that any agreement is fair, enforceable, and in line with your best interests.
Should I Hire a California Lawyer for Help With an Employment Confidentiality Agreement?
Absolutely. If you’re an employer drafting an agreement or an employee seeking to understand the implications of signing one, it’s best to get a clear perspective on your rights and obligations.
If you need assistance, connect with a skilled California employment lawyer through LegalMatch today.
