NDAs for California Businesses

A nondisclosure agreement is one of the most useful contracts a small business signs, and one of the most often copied from somewhere else. California lets you protect real secrets with a contract. It doesn’t let you use a confidentiality clause to keep a former employee out of the industry or to keep workplace misconduct quiet.

This guide covers what a California NDA can protect, the lines the law draws for employees and settlements, the drafting points I use for business-to-business NDAs, and a clause checklist. It’s part of my series on contractors, contracts, and leases.

Are NDAs enforceable in California?

Yes, within limits. California courts enforce NDAs between businesses, with investors and buyers, with contractors, and with employees, as long as the agreement protects legitimate confidential information and stays clear of the statutes below.

The agreement works alongside trade secret law, not in place of it. California’s Uniform Trade Secrets Act protects trade secrets whether or not anyone signed an NDA, and Civ. Code § 3426.7(b) says the Act does not affect contractual remedies, whether or not based on misappropriation of a trade secret. So a signed NDA gives you a contract claim on top of the statute.

What information can a California NDA protect?

The strongest protection goes to trade secrets. Under Civ. Code § 3426.1(d), a trade secret is information, including a formula, pattern, compilation, program, device, method, technique, or process, that derives independent economic value from not being generally known and is the subject of reasonable efforts to maintain its secrecy.

Both parts matter. A recipe your competitors would pay for qualifies on the first part, but if you hand it to every new line cook without an NDA and post it in the kitchen, you’ll struggle with the second. An NDA is one of the clearest pieces of evidence that you made reasonable efforts to keep something secret.

Some things never qualify. Under Civ. Code § 3426.1(a), reverse engineering or independent derivation alone is not considered improper means. Information that’s public, that the other side already knew, or that anyone in the industry would know isn’t a trade secret, and an NDA that claims otherwise invites the problem in the next section.

What remedies does trade secret law give you?

The statute gives you injunctions, damages, and in bad cases, double damages and fees. Under Civ. Code § 3426.2(a), actual or threatened misappropriation may be enjoined. Under Civ. Code § 3426.3(a), you may recover damages for actual loss and for unjust enrichment not counted in the actual loss.

Under Civ. Code § 3426.3(c), if willful and malicious misappropriation exists, the court may award exemplary damages of up to twice the award for actual loss or unjust enrichment. Under Civ. Code § 3426.4, the court may award reasonable attorney’s fees to the prevailing party when misappropriation is willful and malicious or a claim is made in bad faith.

There’s a deadline. Under Civ. Code § 3426.6, an action for misappropriation must be brought within three years after the misappropriation is discovered or, with reasonable diligence, should have been discovered.

When does an NDA become an illegal non-compete?

When it’s so broad that the other person can’t work in their field without breaching it. Bus. & Prof. Code § 16600(a) voids every contract by which anyone is restrained from engaging in a lawful profession, trade, or business, to that extent, and a confidentiality clause can be that kind of contract.

The warning signs are familiar. The NDA defines confidential information as “all information learned during the relationship,” includes general skills and industry knowledge, has no exclusion for public information, and never expires. A clause like that stops a former employee from using what they know about the trade, as well as your secrets. My non-compete guide covers the statute and the 2024 penalties for including a void restraint in an employment contract.

The fix is standard drafting. Exclude information that is public, that the recipient knew before, that the recipient develops independently, or that the recipient receives lawfully from someone else, and say that general skills and experience aren’t confidential information.

What can’t an employee NDA restrict?

An employee NDA can protect trade secrets and business information, but it can’t silence employees about unlawful conduct, working conditions, or reports to the government. Several statutes overlap here.

Unlawful acts in the workplace

Under Government Code § 12964.5(a)(1)(B), it is an unlawful employment practice for an employer, in exchange for a raise or bonus or as a condition of employment, to require an employee to sign a nondisparagement agreement or other document that has the purpose or effect of denying the employee the right to disclose information about unlawful acts in the workplace.

The statute also requires specific language. Under Government Code § 12964.5(a)(1)(B)(ii), a nondisparagement or other provision that restricts an employee’s ability to disclose information about conditions in the workplace must include, in substantial form, this sentence: “Nothing in this agreement prevents you from discussing or disclosing information about unlawful acts in the workplace, such as harassment or discrimination or any other conduct that you have reason to believe is unlawful.”

The employer keeps one important right. Government Code § 12964.5(f) says the section does not prohibit an employer from protecting its trade secrets, proprietary information, or confidential information that does not involve unlawful acts in the workplace.

Separation and severance agreements

The same statute reaches the exit paperwork. Under Government Code § 12964.5(b)(1), an employer may not include in any agreement related to an employee’s separation a provision that prohibits the disclosure of information about unlawful acts in the workplace, and the same required sentence applies to a nondisparagement clause.

Under Government Code § 12964.5(b)(4), an employer offering a separation agreement must notify the employee of the right to consult an attorney and provide a reasonable period of not less than five business days to do so. Under Government Code § 12964.5(e), the section does not prohibit a provision that keeps the amount paid in a severance agreement confidential.

Other disclosures an employee NDA can’t bar

• Working conditions. Lab. Code § 232.5 bars an employer from requiring, as a condition of employment, that an employee refrain from disclosing information about the employer’s working conditions. It also says it doesn’t permit an employee to disclose trade secrets or privileged information without consent.
• Reports to the government. Lab. Code § 1102.5(a) bars an employer from making, adopting, or enforcing any rule or policy preventing an employee from disclosing information to a government or law enforcement agency when the employee reasonably believes it shows a violation of law.
• Testimony. Under Civ. Code § 1670.11, a provision in a contract or settlement entered into on or after January 1, 2019, that waives a party’s right to testify about alleged criminal conduct or sexual harassment, when required or requested by a court order, subpoena, or written request from an agency or the Legislature, is void.

The federal whistleblower notice

Every NDA with an employee or contractor should include the federal immunity notice. Under 18 U.S.C. § 1833(b)(1), an individual can’t be held liable under any federal or state trade secret law for disclosing a trade secret in confidence to a government official or an attorney solely to report a suspected violation of law, or in a court filing made under seal.

Under 18 U.S.C. § 1833(b)(3), an employer must give notice of that immunity in any contract with an employee that governs the use of a trade secret or other confidential information. If the employer doesn’t, it may not be awarded exemplary damages or attorney fees under the federal Defend Trade Secrets Act against an employee who didn’t get notice. And 18 U.S.C. § 1833(b)(4) defines “employee” to include contractors and consultants. A cross-reference to a written reporting policy satisfies the requirement.

Federal law adds one more limit. Under 42 U.S.C. § 19403, the Speak Out Act, a nondisclosure or nondisparagement clause agreed to before a sexual assault or sexual harassment dispute arises is not judicially enforceable for that dispute.

What are the limits on NDAs in settlement agreements?

A settlement can keep the dollar amount private but not the facts of certain claims. Under Code Civ. Proc. § 1001(a), a settlement provision that prevents or restricts disclosure of factual information related to a claim filed in a civil or administrative action is prohibited for claims of sexual assault, sexual harassment, workplace harassment or discrimination, failure to prevent it, retaliation for reporting it, and housing harassment or discrimination.

Some confidentiality survives. Under Code Civ. Proc. § 1001(c), at the claimant’s request, the settlement may shield the claimant’s identity and facts that could reveal it, unless a government agency or public official is a party. Under Code Civ. Proc. § 1001(e), a provision keeping the amount paid confidential is allowed. Code Civ. Proc. § 1002 imposes stricter rules for civil actions based on felony sex offenses, childhood sexual assault, and sexual exploitation of a minor.

If you’re settling a claim like this, the settlement belongs with litigation counsel. I don’t handle those negotiations, and I’m glad to refer you.

How should a business-to-business NDA be drafted?

Draft it around the deal. An NDA for a potential buyer reviewing your books, a manufacturer receiving your specifications, or a software vendor with access to your customer data each needs different terms. I work through the clauses in the table below.

Clause	What I look for
Mutual or one-way	Mutual if both sides share; one-way if only you disclose. A one-way NDA from the other side’s template often protects only them.
Definition of confidential information	Specific categories, with marking rules if practical, and the standard exclusions for public, prior, independent, and third-party information
Purpose limitation	Information may be used only to evaluate or perform the stated deal
Who may see it	Named employees and advisors with a need to know, bound by equal duties
Standard of care	At least reasonable care, and the care the recipient uses for its own secrets
Term	A fixed term for ordinary confidential information, and protection for trade secrets as long as they remain secret
Return or destruction	On request or at the end of talks, with a certificate
Compelled disclosure	Notice and a chance to seek a protective order before disclosure under subpoena
Whistleblower carve-outs	The 18 U.S.C. § 1833(b) notice for any individual, and the California carve-outs for employees
Non-solicitation terms	Watch for these in deal NDAs; they can restrain a lawful business under Bus. & Prof. Code § 16600, and I narrow or remove them
Remedies	Injunctive relief, California law, a California forum, and a fee clause if you want one

On fees, remember California’s reciprocity rule. Under Civ. Code § 1717(a), when a contract awards attorney’s fees to one party for enforcing it, the party who prevails on the contract is entitled to reasonable fees whether or not that party is the one named. A one-sided fee clause works both ways.

A worked example

An Oxnard specialty food company is talking with a co-packer in Riverside about producing its sauces. The company’s recipe and supplier pricing are the business. Before sending specifications, it signs a one-way NDA that names the recipe, process parameters, and supplier costs, limits use to evaluating and performing the co-packing deal, and restricts access to the co-packer’s production manager and quality team.

Two years later, the co-packer launches a nearly identical sauce under its own label. If the company can show the recipe is a trade secret and the co-packer used it, the company has a contract claim under the NDA and a misappropriation claim, with damages for actual loss and unjust enrichment under Civ. Code § 3426.3(a). If the misappropriation was willful and malicious, the court may add exemplary damages of up to twice the damages award. Without the NDA and the access limits, the company would have had a hard time showing it kept the recipe secret at all.

NDAs in buying or selling a business

Every sale starts with an NDA, and it’s often signed before anyone calls a lawyer. A seller should limit what’s disclosed at each stage, require the buyer to keep its advisors bound, and keep employee and customer names back until late in due diligence. My guide to selling a California business covers where the NDA fits in the sequence.

Buyers should read the non-solicitation language closely. A clause barring the buyer from hiring any of the seller’s employees for two years if the deal fails is common in national templates, and in California it deserves a hard look under Bus. & Prof. Code § 16600.

Where I fit

I draft and review NDAs, confidentiality and invention assignment agreements for employees and contractors, and the confidentiality terms in sale documents, at $500 per hour. That work is part of my business law practice.

I don’t litigate trade secret cases or handle the settlement of harassment or discrimination claims. If someone has taken your information or sued you over an NDA, you need litigation counsel, and I can refer you.

Frequently asked questions

Are NDAs legal in California?

Yes. California enforces NDAs that protect real confidential information. They’re unenforceable to the extent they restrain someone from working in their field, stop an employee from disclosing unlawful acts in the workplace, or hide the facts of certain harassment and discrimination claims in a settlement.

How long does an NDA last in California?

As long as the contract says, subject to reasonableness. Many business NDAs protect ordinary confidential information for two to five years and trade secrets for as long as they stay secret. Trade secret protection under California law has no fixed end date, but it ends when the information becomes public.

Can an employer make me sign an NDA?

An employer can require a confidentiality agreement that protects trade secrets and business information. It can’t require an agreement that stops you from disclosing unlawful acts in the workplace, discussing working conditions, or reporting violations to the government. Those carve-outs are required by statute.

What happens if someone breaks an NDA in California?

The business can sue for breach of contract and, if trade secrets were involved, for misappropriation under the Uniform Trade Secrets Act. Remedies can include an injunction, damages, and for willful and malicious misappropriation, exemplary damages and attorney’s fees. Those cases go to litigation counsel.

Do I need the Defend Trade Secrets Act notice in my NDA?

For any NDA with an employee, contractor, or consultant, yes. Without it, you give up exemplary damages and attorney fees under the federal Act against a person who didn’t get the notice. The notice is a short paragraph or a cross-reference to your reporting policy.

Is a non-solicitation clause in an NDA enforceable in California?

Often not, at least in employment agreements, because it can restrain a lawful trade under Bus. & Prof. Code § 16600. The safer approach is to protect customer information itself as a trade secret and to bar its use, rather than barring contact with customers.