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Nondisclosure and Confidentiality Agreements: How California Law Allows Your Employer to Limit What Business Information You Can Take With You


California employers often require their employees to sign nondisclosure agreements protecting any “trade secrets” of the business. A trade secret can broadly refer to any information that is not generally known outside of the employer, such as customer lists, unpatented inventions, or formulas and processes used in producing the employer’s products. If a current or former employee “misappropriates” a trade secret, say by selling it to a rival company, the employer may take legal action by seeking an injunction or even monetary damages.

Appeals Court: Luxury Hotelier Did Not Take “Reasonable Steps” to Secure Allegedly Confidential Information

But an employer cannot broadly assert trade secret protection unless it has taken reasonable steps to secure any allegedly confidential information. A recent decision from the California Second District Court of Appeals, Belvedere Hostel Partnership v. Tasco, offers an example where an employer did not take such steps and a former employee managed to defeat a misappropriation claim.

The defendant in this case worked as a manager at the Peninsula Beverly Hills Hotel, a luxury hotel. The Peninsula claimed it maintained a confidential “database” of guest information, which the defendant had access to during his employment. The defendant also signed a confidentiality agreement, which among other provisions required him to “return all Hotel Materials” when his employment ended.

Although the defendant needed to access the Peninsula’s database regularly, even during his off-work hours, the employer did not provide him with a work laptop. Instead, the employer required the defendant to use his personal devices to send and receive work emails, as well as store copies of company-related documents.

At some point, the defendant decided to leave the Peninsula for a job with a competing luxury hotel, the Waldorf Astoria. A few months later, the Peninsula sued the defendant as well ass the developer of the Waldorf hotel, alleging they conspired to misappropriate Peninsula’s trade secrets. Essentially, Peninsula’s case was that the defendant failed to delete the work emails on his personal devices after he left the company, and this information was thus available to the Waldorf Astoria.

A California superior court judge denied Peninsula’s motion for a preliminary injunction against the defendants. The Second District upheld the judge’s decision. In its opinion, the appeals court explained that Peninsula “failed to take reasonable steps to keep its information confidential.” Peninsula’s position was that it made the defendant sign a confidentiality agreement and that was sufficient. But as both the trial judge and the Second District noted, given that Peninsula failed to provide the defendant with a work laptop and required him to work off-premises, it “had to know that [he] was accessing email outside of Peninsular’s network.” And yet the employer “took no efforts to retrieve the emails when [the defendant’ left Peninsula’s employ, further indicating they were not wrongfully misappropriated.”

Do You Have Questions About Your Confidentiality or Nondisclosure Agreement?

If you are under a confidentiality or nondisclosure agreement with your current employer, it is important to understand what such contracts do–and do not–require both you and the employer to do once your employment has ended. If you have any questions about the provisions of your particular agreement, it is best to speak with a qualified California employment law attorney as soon as possible.


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* Cathleen Scott is licensed to practice in Florida only.

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