San Diego Employee Non-Disclosure Agreements: What Should They Contain?

The purpose of San Diego and California non-disclosure agreements (“NDA”) is to protect your business and its commercially valuable trade secrets. Trade secrets and confidential information are often the key to keeping and expanding your company’s market share. We have discussed the methods of protecting trade secrets here and here. To be considered “secret,” the information must provide a competitive advantage, be commercially valuable, and your business must take “reasonable steps” to protect the information from disclosure. See Cal. Civ. Code §§ 3426, et seq. One of those “reasonable steps” is to have all of your employees sign NDAs.

Your business needs different NDAs for different contexts. In this article, we will discuss NDAs for employees. Previously, we discussed (here) confidentiality agreements with respect to litigation settlements and other situations where the agreement itself — its existence and/or content — requires confidentiality. Distinct NDAs are also needed for vendors, potential investors, lenders, etc. A good San Diego corporate attorney can provide the essential advice/counsel and draft any and all NDAs to meet your unique needs.

San Diego Corporate Law: What Should Be in My Employee NDA?

The reason your business needs a distinct type of NDA for employees, as opposed to vendors and/or potential investors, is that employees are expected to be with your company for an indefinite length of time. Thus, an employee NDA must look forward to unknown eventualities. As such, the language used must be broad enough to cover current circumstances and cover changes to your business and changes to the law. Employee are often the creators of trade secrets. Such must be covered by the NDA. Here are “must-have” provisions.

Definitions:

Among the important provisions are ones that define what is to be deemed confidential. In general, these can be called “trade secrets, confidential and proprietary business information.” Often, however, it is useful provide more detail and break down the trade secrets into subcategories such as technical information and business information. The former would be information with respect to methods, processes, formulae, compositions. systems, techniques, inventions, machines, computer programs, research projects, R&D, and more. The latter would be information such as business plans, investor and customer lists, pricing data, sources of supply, financial data, marketing, production, and merchandising systems or plans and operation plans, investor transactions, stock ownership, and more.

It is necessary with an employee NDA to articulate that the definitions include information now in existence and trade secrets and information that may come into being during the course of the employment of the employee.

Ownership:

As noted, it is important to specify that the company owns the trade secrets, confidential and proprietary business information in whatever format INCLUDING any trade secrets or information created by the employee.

No Disclosure or Use by Employee:

The purpose of an NDA is to prohibit disclosure of the trade secrets and information by the employee. Thus, appropriate provision regarding nondisclosure and maintenance of confidentiality must be added. Furthermore, the employee should be required to take “reasonable steps” to prevent any unauthorized disclosure and that the employee “immediately report” any unauthorized, accidental, or other disclosure.

In addition, a good NDA will also prohibit USE of the confidential information by the employee “in any manner” not otherwise related to work duties.

Return of Confidential Information:

Another key aspect of a good employee NDA is a requirement that the employee return to the company any confidential information upon termination or separation from the company. This should apply whether or not the documents or computer or disks are marked “confidential” or “proprietary.”

San Diego Corporate Law: A Stand-Alone NDA is Preferable

Employee NDAs are enforceable in California. However, it is recommended that an employee NDA be a “stand alone” contract; not merely part of a larger employment contract. This avoids two potential pitfalls:

That the larger employment contract might be declared unenforceable on some legal ground, thereby invalidating the portions of the employment contract related to non-disclosure.

A challenge based on lack of consideration, a stand-alone NDA will have its own consideration.

A stand alone NDA also allows for changes and amendments without impacting a more expansive employment contract.

Contact San Diego Corporate Law

For further information, please contact Michael Leonard, Esq. of San Diego Corporate Law. Mr. Leonard has the experience to draft employee NDAs that will help protect your San Diego business. Mr. Leonard can also assist with any other business-related legal matter. Contact Mr. Leonard by email or by calling (858) 483-9200.

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