Compliance/Best Practices Employment Law Legal Topics New Legal Developments

Yes, California Employers, It Really Is Time to Update Your NDAs

The following is a guest blog post by Tyler M. Paetkau, Hartnett, Smith & Paetkau, Redwood City, CA. Tyler represents employers in all aspects of employment and labor law, including counseling and litigation regarding trade secrets and unfair competition.

Now is a particularly good time for California employers to update and revise their agreements with employees respecting trade secrets and other confidential and proprietary information (NDAs), based on several recent, noteworthy legal developments. Review your NDAs and make these three changes.

Delete non-California choice of law and venue provisions unless the employee is represented by counsel. A new California law, Labor Code §925, severely restricts the ability of employers to include out-of-state choice of law provisions in employment contracts with California employees (starting with contracts on January 1, 2017), unless the affected employee is actually represented by counsel:

(a) An employer shall not require an employee who primarily resides and works in California, as a condition of employment, to agree to a provision that would do either of the following:

(1) Require the employee to adjudicate outside of California a claim arising in California.

(2) Deprive the employee of the substantive protection of California law with respect to a controversy arising in California.

California employees may void offending provisions, in which case “the matter shall be adjudicated in California and California law shall govern the dispute.” Lab C §925(b). Prevailing employees may obtain injunctive relief, reasonable attorney fees, and any other remedies available. Lab C §925(c).

California employers should delete non-California choice of law and venue provisions in contracts (including severance and arbitration agreements) with employees who primarily work and live in California, unless the affected employee is actually represented by counsel, in which case the contract should recite that the employee is represented by counsel in the drafting and execution of these specific contract provisions.

Include the special anti-retaliation notice provision to comply with the federal Defend Trade Secrets Act (DTSA). The DTSA requires that employers provide the following notice of the immunity and anti-retaliation provisions to employees, consultants, and independent contractors in any contract or agreement entered into after May 11, 2016, that governs the use of trade secrets or other confidential information:

Pursuant to the Defend Trade Secrets Act of 2016, I understand that:

An individual may not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that: (a) is made (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (b) is made in a complaint or other document that is filed under seal in a lawsuit or other proceeding.

Further, an individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the employer’s trade secrets to the attorney and use the trade secret information in the court proceeding if the individual: (a) files any document containing the trade secret under seal; and (b) does not disclose the trade secret, except pursuant to court order.

Delete non-solicitation of customers provisions. Recognizing California’s famous ban on post-employment non-competes (except in the narrow sale of business context), some California employers resorted to post-employment non-solicitation of customers provisions. But California law is now settled that such provisions are generally void and unenforceable, and their mere inclusion may constitute an unfair business practice under California law. See Bus & P C §§ 16600, 17200; Edwards v Arthur Andersen (2008) 44 C4th 937, 948; Dowell v Biosense Webster (2009) 179 CA4th 564, 575.

For more on trade secret protection and unfair competition, turn to CEB’s Advising California Employers and Employees, chap 11 and CEB’s program Trade Secrets and Employee Mobility, available On Demand. And for guidance as you help clients guard their trade secrets, enforce trade secret protections, or defend against trade secret misappropriation, check out CEB’s Trade Secrets Practice in California.

Other CEBblog™ posts you may find useful:

© The Regents of the University of California, 2017. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.

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