Non-Competes vs. Non-Disclosures: What’s the Difference?

Non-Compete and Non-Disclosure clauses are common in many employment contracts today, but what are they, and more importantly, are they legal in California? Both non-competes and non-disclosures work to keep a company or employer’s sensitive information or trade secrets from being shared with a competitor or with the public. When an employee or worker violates one of these agreements, it can cost them a lot of money. 

While these types of agreements may seem similar, there are some important differences that employees should know about. These types of contracts are governed by federal and state employment laws. California has several laws that limit what employers can and cannot put into these agreements. Before signing a non-compete or an NDA (non-disclosure agreement), you should be aware of these laws and contact an experienced California employment lawyer if you have any questions. 


Non-Compete Agreements

The majority of non-compete agreements are designed to protect employers from having their proprietary information shared with a competitor. These are most common with large corporations in competitive markets like Coca-Cola, Apple, etc., but can also be found in small businesses. 

In a non-compete agreement, an employee agrees not to work for a direct competitor after leaving their current job for a set amount of time. The goal of these laws is to protect the interest of the company while also allowing the employee to find meaningful work after he or she leaves their former employer. In general, non-compete agreements tend to expire a few years after an employee has stopped working for the company. 

Most states allow non-competes as long as they are reasonable. However, as of late 2020, California no longer allows the vast majority of non-compete agreements. This makes non-disclosure agreements even more important and popular for business owners and employers. 


Non-Disclosure Agreement (NDA)

Like a non-compete agreement, a non-disclosure agreement or NDA is a form of “restrictive covenant” that prevents workers from providing trade secrets or other information to another company. Employees who have signed an NDA are prohibited from providing a competitor with information from their current or former employer such as trade secrets, patent information, customer lists, etc. NDAs are also commonly used with celebrity employers to prevent information from their private life from going public. NDAs do not protect information that is common knowledge, has already been stolen, or became compromised by no fault of the employee. 


Key Differences

While both agreements may appear in an employment contract together, a non-compete and a non-disclosure agreement serve different purposes. This is why many companies will include both provisions in their employment contracts. It’s important to note that non-compete agreements only apply to the employee while non-disclosure agreements can be mutual. If two companies decide to work together on a project, for example, a non-compete agreement would not apply and only a non-disclosure would be required to protect specific information from being shared with the public. Since these agreements have several areas of overlap, many companies choose to include both an NCA and an NDA in the same contract.


Non-Compete Agreements and NDAs Under California Law

As previously mentioned, non-compete agreements are generally not allowed in California, but NDAs are. Because these rules have changed recently, many employers are not following up-to-date procedures and your rights may be at risk. 

If you believe a non-compete or non-disclosure agreement is unlawfully preventing you from acquiring employment or were fired because you refused to sign one of these agreements, contact our team at Davtyan Law today. Our attorneys have tons of experience in all aspects of employment law in California and we work hard to protect the rights of employees throughout the state.

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