The state of California has a statutory prohibition on post-employment restrictions, such as non-compete contracts, which are nevertheless enforceable in many other states. has bedeviled employers trying to protect confidential information and trade secrets. Section 16600 of California’s Business and Professions Code section 16600 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." Because of this bar, employers based in California have limited options to prevent post-employment competition and solicitation.
There is one method through which California employers are able to prevent former employees from using confidential information to compete and solicit customers and employees i.e. enforceable non-disclosure agreement (NDAs). Recently, the California Court of Appeal, Fourth Appellate District in Richard Hale Brown v. TGS Management Company, LLC, No. G058323 (Cal. Ct. App. October 13, 2020), however, has taken the unparalleled step of applying section 16600 to nullify the scope of non-disclosure requirements on confidential information. The court also dismissed an arbitration award that found a former employee to have violated the confidential information provisions of his NDA. It must be pointed out that this decision should be read in the light of its exceptional facts, especially since it applied to the very specialized field of statistical arbitrage. Nevertheless, employers would be wise to re-examine their NDA agreements to confirm that the definition of ‘confidential information’ is not so wide in its scope that it can be interpreted as a restraint on practicing a chosen profession, trade or business in contravention of section 16600.
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