Confidentiality agreements and non-compete clauses: both are common terms in employment and business purchase agreements. The former enjoys broad acceptance. For example, both Hawaii (Haw. Rev. Stat. §§ 482B-1 et seq.) and California (Cal Civ Code § 3426 et seq.) recognize the Uniform Trade Secrets Act. The latter, non-compete clauses, well… not so much. For example, the California Business and Professional Code § 3426 Section 16601 only recognizes the enforceability of non-compete agreements in three situations.
While jurisdictions vary as to whether, and to what degree, non-compete agreements are recognized, both terms have merit in the course of business. Business owners benefit from the security of keeping their hard-earned trade secrets protected. Employees benefit from the ability to be employed and work effectively in using these trade secrets.
But if confidentially agreements are generally favored by the courts and non-compete agreements less so, are there instances where the lines become blurred? Could a confidentially agreement become so onerous, that it effectively becomes a non-compete agreement?
One recent California appellant court thought so. In Brown v. TGS Management Co., LLC, (2020 Cal. App. LEXIS 1074) the court of appeals for the Fourth Appellate District overturned a trial court ruling, finding: “Collectively, these overly restrictive provisions [of a confidentiality agreement] operate as a de facto noncompete provision; they plainly bar Brown in perpetuity from doing any work in [his profession]. The Court then declared the confidentiality provisions void ab initio and unenforceable.
Takeaway
Business owners want contracts that are enforceable. No business owner, whether as part of an employment agreement or as part of a purchase of a new business, wants contract terms declared invalid by the Court. Whether Legacy or Business Planning, Contact CASHMAN LAW today for a free consultation in drafting the business contract you need. Get the Plan You Deserve™
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