Non-disclosure Agreements Void for Public Policy Reasons

A nondisclosure agreement is void as a matter of law where it is found to be in violation of public policy. (See Cariveau v. Halferty (2000) 83 Cal.App.4th 128 discussing the unenforceable “confidentiality agreement... [that] expressly prohibited disclosure of the facts underlying the agreement to "any public or private person or entity, or to any administrative, law enforcement or regulatory agency," where a broker-dealer “admitted that the purpose of the confidentiality clause in the Forbearance Agreement was to prevent the customer from disclosing the improper outside sales to the NASD and the employer. (Id. at 134-135.)

In Cariveau, “[t]he NASD concluded that the confidentiality clause was a continuation of [the defendant-appellant's] false reports, that was expressly intended to cover up her improper actions and allow the unsupervised prohibited sales to continue for a period of four years. The Forbearance Agreement required suppression of information that [appellant] was required to report to her employer and the NASD. It also allowed [appellant] to continue to violate the rules regarding outside sales, facilitated her periodic false reports to her employer, and frustrated the NASD's self-regulation policies.”(Id. at 135)

Importantly and with respect to statutorily supported public policy grounds, the court stated “‘[E]very case from every court recognizes that when a statute has been made for the protection of the public, a contract in violation of its provisions is void.’” (Cariveau, supra, 83 Cal. App. 4th at 134 citing Tatterson v. Kehrlein (1927) 88 Cal. App. 34, 48 [discussing California corporate securities act]; Contracts that violate the Securities Exchange Act of 1934 are unenforceable. fn. 11 (15 U.S.C. Sec. 78cc(b).)

Attorneys May Also Be Bound by Confidentiality Agreements

In Monster Energy Co. v. Schechter, et al.(July 11, 2019) California Sp. Ct., Case No. S251392, the high court overturned the appellate court's decision (Monster Energy Co. v. Schechter, et al. (2018) 26 Cal. App. 5th 54) finding that “in light of the nature and extent of provisions in the agreement here purporting to bind counsel, and the other properly submitted evidence, Monster Energy has met its burden of showing its breach of contract claim has ‘minimal merit’ sufficient to defeat an anti-SLAPP motion. ” (Monster Energy Co. v. Schechter, et al. (July 11, 2019) California Sp. Ct., Case No. S251392. [unpublished].)

Non-disclosure Agreements and Trade Secret Misappropriation

The court may enjoin "[a]ctual or threatened misappropriation" of a trade secret. (Civ. Code, § 3426.2(a).) "Misappropriation" is, generally speaking, improper acquisition of a trade secret or its nonconsensual use or disclosure. (Civ. Code, Sec. 3426.1(b); see also Morlife, Inc. v. Perry (1997) 56 Cal. App. 4th 1514, 1523.)

A trade secret means information, including a formula, pattern, compilation, program, device, method, technique, or process, that

1. derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use and
2. is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Civ. Code §3426.1(d).

Confidential customer lists warrant trade secret protection where the employer has expended time and effort identifying customers with particular needs or characteristics and the information is not otherwise readily ascertainable. See, e.g., Morlife, Inc. v. Perry, (1997) 56 Cal. App. 4th 1514, 1521-22.

Misappropriation of a Trade Secret

1. the acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means or
2. disclosure or use of a trade secret of another without express or implied consent by a person who, inter alia, used improper means to acquire knowledge of the trade secret.

Civ. Code Sec.3426.1(b).

To state a prima facie claim for misappropriation of trade secrets, the plaintiff must demonstrate

1. the plaintiff owned a trade secret,
2. the defendant acquired, disclosed, or used the plaintiff’s trade secret through improper means, and
3. the defendant’s actions damaged the plaintiff.

Cytodyn, Inc. v. Amerimmune Pharmaceuticals, Inc.(2008) 160 Cal. App. 4th 288, 297.

Actual or threatened misappropriation of trade secrets may be enjoined. Civ. Code §3426.2(a); see also Retirement Group v. Galante, (2009) 176 Cal.App.4th 1226, 1238 (trial court may enjoin “former employee from using trade secret information to identify existing customers, to facilitate the solicitation of such customers, or to otherwise unfairly compete with the former employer.”)

If the court determines that it would be unreasonable to prohibit future use, an injunction may condition future use upon payment of a reasonable royalty for no longer than the period of time the use could have been prohibited. Civ. Code §3426.2(b). In appropriate circumstances, affirmative acts to protect a trade secret may be compelled by court order. Civ. Code §3426.2(c).

Confidentiality Agreements and the Doctrine of Inevitable Disclosure

Under the doctrine of inevitable disclosure, "a plaintiff may prove a claim of trade secret misappropriation by demonstrating that defendant's new employment will inevitably lead him to rely on the plaintiff's trade secrets." (PepsiCo, Inc. v. Redmond (7th Cir. 1995) 54 F.3d 1262, 1269.) The inevitable disclosure doctrine results in an injunction prohibiting employment, not just use of trade secrets. The doctrine's justification is that unless the employee has "an uncanny ability to compartmentalize information" the employee will necessarily rely -- consciously or subconsciously -- upon [101 Cal. App. 4th 1459] knowledge of the former employer's trade secrets in performing his or her new job duties. (Id. at p. 1269.)