California State Laws
A California non-disclosure agreement may be a legally binding contract that is governed by the State of California. Since it is designed to protect trade secrets belonging to a business, you must understand what a trade secret is as well as understand the basics of what California law says about the document.
California non-disclosure agreements are governed by CA Civ Code §3426 in regards to trade secrets as well as the
California Business and Professions Code §1660
. The California Business and Professions Code states that “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”
However, the California Supreme Court held that NDAs may be used in employment contracts if the NDA is necessary to protect trade secrets.
Muggill v. Rueben H. Donnelley Corp., 62 Cal.2d 239, 242 (1965)
Remember that a California non-disclosure agreement may only be used to protect trade secrets. Non-disclosure agreements are often used along with a
. However, California courts will not uphold either document if they are viewed by the court as
Definition of “Trade Secrets”
The definition of a “trade secret” for a business is found in
CA Civ Code §3426.1
. This is the Uniform Trade Secrets Act. A “trade secret” is defined, in part, as “information, including a formula, pattern, compilation, program, device, technique, or process, that…” provides the business with an independent economic value that is either actual or potential and it isn’t known to the general public. Additionally, the business must make reasonable efforts to keep that information secret.
A Sample California NDA with Examples of Each Step
Remember that a California NDA cannot be used for any purpose other than protecting a trade secret as defined by California business law. It also cannot be overly restrictive. You may find it beneficial to first speak with an attorney before you create an NDA because the purpose of this binding contract is to protect your trade secrets and to protect you in court if necessary.
The opening paragraph identifies
the Disclosing Party (you or your business)
along with your address and
the Receiving Party (your employee, contractor, or other person or business)
as well as their address, and the purpose of the document (to prevent the unauthorized disclosure of trade secrets as they are defined by California law. It is a good practice to include an effective date.
A definition of trade secret according to California law.
California law defines a trade secret as a formula, pattern, compilation, program, device technique, or process that provides the business with an independent economic value that is actual or potential and is not known to the general public. Your business also must take reasonable action to keep the information secret. It may also be prudent to explain how the receiving party will know that they are being exposed to something that is considered a trade secret.
The receiving party's obligations related to the trade secrets.
Examples include maintaining the strictest of confidence, carefully restricting access to the trade secrets without prior written approval from the disclosing party, and not using the trade secrets for their benefit unless they have the disclosing party's written consent.
Ensuring that your NDA is not overly restrictive.
Again, the best way to do this is by having it reviewed by an attorney.
A relationship clause
that states nothing within the nondisclosure agreement makes either party a partner, joint venturer, or employee of the other for any purposes.
A jurisdiction clause
that states California laws will be used to govern the agreement.
A severability clause
that states that if a California court finds any provision of the NDA to be invalid that the rest of the document will remain enforced.
An integration clause
that states the NDA expresses the complete understanding of the parties regarding the subject matter and supersedes previous proposals, agreements, representations, and understandings between the parties. It may also state that the parties may not amend the NDA except in writing and only if the parties both sign the amendment.
A waiver clause
that states that either party's failure to exercise any right presented in the document does not waive prior or subsequent rights.
Finally, there should be space for the parties to sign and print their names, list their titles from the agreement (Disclosing Party or Receiving Party), their professional titles, and the date they signed the NDA. The parties should receive a copy of the executed document for their records.