Q. Should we require new employees to sign a nondisclosure agreement in order to protect our trade secrets, customer lists, etc.?
A. Recent case law addressing nondisclosure agreements, including nonsolicitation clauses, requires California employers to proceed with care.
Nondisclosure agreements are best presented to newly hired employees for execution at the time of hire. These agreements typically:
- Define the employer’s proprietary and confidential information
- Preclude the employee from unauthorized disclosure of proprietary and confidential information during and after the employment relationship
- Prohibit solicitation of clients or customers
- Preclude “raiding” of the employer’s workforce after termination of the employment relationship
- Address return of company property upon termination.
Your agreement can be more or less comprehensive than this.
Recent developments in the area of nonsolicitation clauses (Edwards v. Arthur Andersen, 44 Cal.4th 937, 2008) suggest that employers should carefully review their existing agreements with legal counsel. In Edwards, the California Supreme Court invalidated a noncompetition clause that prohibited Edwards, a former partner at Arthur Andersen, from performing professional services of the type he had provided while at Arthur Andersen for any client on whose account he had worked during the 18 months prior to his termination.
The agreement also prohibited Edwards from soliciting any client of the firm’s Los Angeles office for one year. The Supreme Court rejected the employer’s argument that it should adopt a “narrow restraint” exception of California Business & Professions Code section 16600.