California Protections Found in Non-Disclosure Agreements (NDAs)

Many states recognize a business’s ability to negotiate and enter contracts restricting a departing employee from taking a job with a competitor – or opening a competing business – within reasonable geographic limits and for a limited, reasonable time following the termination date. However, with very limited exceptions, such restraining agreements have been unlawful and unenforceable in California since 1872. This rule is found currently under the Business and Professions Code section 16600, which the California Supreme Court found to be “unambiguous” on this point in Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937.

On the other hand, California does recognize the right of businesses to protect their private information – including confidential customer and client listings — from public disclosure and unauthorized, competing uses. See, for example, California Civil Code sections 3426 – 3426.11. Employers can and should confirm such rights through written “non-disclosure agreements” (NDAs) with their employees.

Thus, while a company does not have the ability to limit a departing worker from immediately going to work for a competitor next door or down the street, that company can effectively limit that former employee’s ability, by court action as needed, to solicit the company’s customers for a switch to his/her new employer, as long as the business has properly protected and maintained its client list as confidential.

With the help of a qualified labor and employment attorney, a well-drafted NDA in California should strike that balance between a worker’s rights to seek new employment of his/her choosing and the company’s rights to protect its private business information from misappropriation.