Contracts can help employers limit risks when hiring or promoting workers. Modern employment contracts are pages long and often require negotiation on a case-by-case basis. Organizations generally try to protect themselves from the possibility of workers damaging the company in the future with the right contract terms.
Restrictive covenants included in employment contracts can help protect businesses from unfair competition and other forms of worker misconduct. These popular contract inclusions have come under intense scrutiny in recent years. Federal policymakers have begun to challenge certain employment practices. State-level courts and lawmakers in California have also challenged common company practices related to restrictive covenants.
Most employers operating in California are aware that the state no longer enforces non-compete agreements. Employers may need to rely on other restrictive covenants to protect trade secrets and prevent unfair competition. Non-disclosure agreements or confidentiality agreements are popular contract inclusions. Are they still enforceable in California?
New rules limit non-disclosure enforcement
Non-disclosure agreements help protect non-public information by requiring worker confidentiality. In many cases, these contracts may include penalty clauses with high financial values attached to deter violations.
California lawmakers have adopted new statutes limiting the use of non-disclosure agreements. However, the legislation is not as sweeping as people might fear. Instead of prohibiting the inclusion of non-disclosure agreements in contracts or ending their enforcement in civil court, lawmakers limited the scenarios in which such agreements are lawful and enforceable.
Employers can no longer use non-disclosure agreements negotiated during severance discussions to prevent the disclosure of inappropriate company practices. Non-disclosure agreements forbidding workers from discussing unsafe work environments, wrongful termination, harassment and other misconduct are not enforceable.
Non-disclosure agreements intended to protect information about how a company operates and its trade secrets are theoretically still enforceable. If workers make inappropriate disclosures on social media or when working for competitors, then former employers may be able to enforce the non-disclosure agreements included in their employment contracts or severance agreements.
Learning more about how the state has adjusted employment laws can help companies maintain effective contracts. Non-disclosure agreements, when used appropriately, remain a powerful tool for limiting employee misconduct. Employers can often still enforce non-disclosure agreements after a violation affects the company’s reputation, undermines the value of its trade secrets or disrupts daily operations.
