Does Your Confidentiality Agreement Contain Unlawful Non-Compete Provisions?
Posted February 12, 2024

Most California employers know that they cannot prevent former employees from fairly competing after leaving their employment. Almost any restriction on fair competition, no matter how limited in duration or geographical area, is unlawful (with very minor exceptions related to the sale of a business). A new California statute, Business & Professions Code Section 16600.1, adds important new obligations and makes noncompliance an act of unfair competition (one of the most common claims in lawsuits filed by former employees).

Is my confidentiality agreement unlawful?

How do you know if your confidentiality agreement contains prohibited language? It must not broadly prevent employees from working for a competitor, advertising their new position and contact information, or even working with your customers (provided that they aren't using your trade secret information to do so).

Here are some examples of non-compliant language:

• “For a period of two years [or any time limit] after the termination of your employment, you agree not to contact or do business with any customer with whom you did business during your employment.”
• “Following your departure from the company, you will not engage in competition with the company in Los Angeles County for six months.”
• “After leaving my employment, I will not recruit any employee or vendor of the company to terminate their relationship with the company.”

What do I do if my agreement contains unlawful provisions?

If you used a noncompete agreement with unlawful provisions at any time after January 1, 2022, you must send a personal written notice to each employee who signed that agreement, advising them that the noncompete agreement is void. The notice should be sent to the employee's last known address, and must be sent no later than February 14, 2024.

Is there any way to protect my business from unfair competition?

Not all confidentiality agreements are unlawful, and using a confidentiality agreement with proper language is critical to protecting your company. Employers shouldn't automatically throw out all prior agreements without legal review.

Even under the new law, employers are still entitled to implement confidentiality agreements prohibiting employees from using the company's trade secrets to compete with the company or solicit your customers. Trade secrets would include, for example, proprietary information such as your customer lists, details of customer contracts, pricing information, and other confidential details known only within the company and not generally available to the public.

To avoid violating the Business & Professions Code, employers are cautioned to review your confidentiality agreement with employment law counsel to ensure that it includes the language you need while avoiding unlawful terminology.

For assistance with your confidentiality agreements or questions about other employment law issues, contact the attorneys at LightGabler.

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