Non-Disclosure and Confidentiality Agreements in 2023: What You Should Know

The House of Representatives quietly passed the Speak Out Act on November 16, 2022. It makes non-disclosure and non-disparagement agreements related to sexual assault or sexual harassment unenforceable if they are made “before the dispute arises.” This includes such clauses in an employment contract or employment confidentiality agreement. This does not include confidentiality clauses in a severance or settlement agreement. However, there are some very important limitations in California.

Understanding Non-Disclosure Agreements in CA

Non-Disclosure Agreements (NDAs) are legal documents used to protect confidential information, such as trade secrets, confidential business information, and intellectual property. In California, NDAs are governed by state law and must adhere to certain terms in order to be enforceable. Generally speaking, an NDA is a contract between two or more parties that outlines the confidential information that each party will share and the restrictions on how this shared information can be used.

There are three main types of NDAs:

  • Mutual NDAs
  • Unilateral NDAs
  • Multilateral NDAs

Mutual NDAs are agreements between two parties where both sides agree not to disclose each other's confidential information. Unilateral NDAs involve only one party disclosing confidential information to another party who agrees not to use it for their own benefit or disclose it to others. Multilateral NDAs involve multiple parties exchanging confidential information with each other.

When a party violates an NDA in California, they may face legal repercussions including fines and damages. Additionally, the court may issue an injunction ordering the violator to cease any activities related to the breach of contract. It is important for all parties involved in an NDA agreement to understand their rights and obligations under California law so that they can take appropriate action if necessary.

Whistleblower Laws in CA

What Is a Whistleblower?

Under California law, a whistleblower is an individual who reports or discloses information about illegal activity, waste, fraud, abuse of authority, violation of law, or threat to public health. The California Whistleblower Protection Act (Government Code Section 8547.1 et seq.) protects state employees from retaliation for reporting such activities.

The Act allows state employees to report any suspected violations of the law without fear of retribution. It also provides civil financial penalties to individuals or entities if a whistleblower's disclosure results in the recovery of funds by the State of California. Additionally, the Act prohibits employers from terminating or retaliating against employees who report violations of the law.

Severance Agreements: Claims, Complaints, and Retaliation

In California, under Code of Civil Procedure §1001, an employer may not use a severance or settlement agreement to prevent an employee from sharing their experiences of discrimination or harassment related to claims in a lawsuit or administrative proceeding.

Additionally, under California Government Code §12964.5, a severance agreement may not prevent an employee from coming forward about “unlawful acts in the workplace,” including but not limited to, “harassment or discrimination or any other conduct that the employee has reasonable cause to believe is unlawful.”

However, this does not apply to negotiated settlement agreements “to resolve an underlying claim under this part that has been filed by an employee in court, before an administrative agency, in an alternative dispute resolution forum, or through an employer’s internal complaint process.”

A Brief Overview of the Speak Out Act

The U.S. Congress has recently passed the Speak Out Act, which aims to protect whistleblowers who report securities law violations to the Securities and Exchange Commission (SEC). The Act clarifies and expands on the whistleblower protections provided under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Key provisions include extending anti-retaliation protections to whistleblowers even if they did not report to the SEC, requiring the SEC to respond to retaliation complaints within 60 days, and allowing whistleblowers to take legal action against employers for retaliation. This legislation is expected to encourage more individuals to come forward with information about securities law violations, thus promoting transparency and accountability in the financial sector.

Key Takeaways

The Speak Out Act is a federal legislation aimed at protecting whistleblowers who report securities law violations to the Securities and Exchange Commission (SEC). This Act expands upon the Dodd-Frank Wall Street Reform and Consumer Protection Act's whistleblower protections, extending anti-retaliation provisions to whistleblowers regardless of whether they reported to the SEC, mandating the SEC to respond to retaliation complaints within 60 days, and allowing whistleblowers to take legal action against employers for retaliation.

On the other hand, non-disclosure and confidentiality laws govern agreements that protect sensitive information, such as trade secrets, intellectual property, and other confidential business data. These laws dictate the terms and enforceability of NDAs ensuring that parties adhere to the agreed-upon rules regarding the use and disclosure of shared confidential information.

While both the Speak Out Act and CA’s non-disclosure and confidentiality laws aim to protect sensitive information, their scopes and purposes differ significantly. The Speak Out Act focuses on shielding whistleblowers from retaliation, encouraging transparency and accountability in the financial sector. In contrast, the state’s laws center around safeguarding confidential information from unauthorized use or disclosure in various business contexts.

These laws impact stakeholders in different ways. The Speak Out Act benefits individuals by offering protection from employer retaliation, fostering an environment where whistleblowers feel safe to report securities law violations. Companies must be aware of these protections and ensure compliance with securities laws to avoid potential penalties. Non-disclosure and confidentiality laws, on the other hand, affect businesses by imposing requirements on NDAs and other confidentiality agreements, promoting the protection of valuable information and intellectual property.

For legal help regarding confidentiality agreements, retaliation, or other claims, contact Harris Grombchevsky LLP.

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