Time to update your NDAs (California PSA)

We're fortunate enough to have a huge network of attorneys that we trust, who handle everything from patent filings to complicated tax issues.  This post is adapted from a public service announcement from our California employment cohort Carter Fries, who distributed this guest blog post by Tyler M. Paetkau at Hartnett, Smith & Paetkau.  California is probably the most employee-protective State in the US, so if you have any work in California, it would be a very good idea to get counsel on your employment/freelance practices there.

Here are a few changes you may want to make to your NDAs with California staff (the second one actually applies nationwide!):

If you work in California, don't make the NDA subject to another state's laws. A new California law, Labor Code §925, keeps employers from making their staff's NDAs subject to another states laws unless their represented by a lawyer. So if your employee or freelancer primarily works in California, and isn't represented by an attorney, your contract with them may be voided if it's governed by, for instance, New York law.  

Don't retaliate against your staff for compliance with the Defend Trade Secrets Act (DTSA). There is a new federal law that creates a federal lawsuit for misappropriation of a company's trade secrets (this used to be state law).  One provision of the DTSA says that an employer cannot retaliate against a worker for responding to a court order under the new trade secret cause of action.  So, e.g., if your company were sued by another company for misappropriating a trade secret under this new law, your company could not terminate an employee or claim breach of their NDA if s/he was subpoena'd to testify in that lawsuit.  

For your reference here is the required notice:

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. It's fairly common knowledge that California does not recognize non-competition agreements between employers and staff.  In response some employers have re-cast those provisions in terms of non-solicitation.  In other words, instead of "you shall not compete with our business for a year after termination," employers now write "you shall not work with my clients for a year after termination."  The courts have caught on, and they are starting to treat these these provisions as unenforceable, like non-competition clauses.