The most effective way to keep employees from taking your company’s trade secrets is to protect the information before anyone leaves: have every employee sign a confidentiality and invention assignment agreement at hire, limit access to sensitive information, and follow a consistent exit process that recovers devices, cuts off access and reminds the employee of their obligations. In California, you cannot rely on a non-compete to do this work, because employee non-competes are generally void, but trade secret law and confidentiality agreements remain enforceable.
Trade secrets, such as source code, customer data, pricing, product roadmaps and know-how, are often a startup’s most valuable assets. Below are practical steps for the two moments of greatest risk: hiring and departure.
What the Law Protects
Under the California Uniform Trade Secrets Act and the federal Defend Trade Secrets Act, information is a trade secret if it has economic value because it is not generally known and the owner takes reasonable steps to keep it secret. That second element matters: if a company does not protect its information, a court may find it was never a trade secret at all. The steps below help establish those reasonable efforts.
California also limits what employers can do. Business and Professions Code Section 16600 makes most employee non-compete agreements void, and Section 16600.5 makes it unlawful to enter into or try to enforce them, with a private right of action for affected employees. Customer non-solicitation clauses are generally treated the same way, and courts have also questioned employee non-solicitation clauses. California courts have also rejected the “inevitable disclosure” theory, so an employer generally cannot stop a former employee from working for a competitor merely because they know its secrets. See California’s non-compete agreements.
At Hiring
1. Keep out other companies’ secrets. Bringing in a new hire’s prior employer’s information can expose your company to misappropriation claims. Before the start date:
- Instruct the new hire in writing not to bring or use any confidential information, documents, files or devices from a former employer.
- Ask them to return former employers’ property, such as files, customer lists, laptops, phones and storage drives, before they start.
- Ask whether they are subject to confidentiality, invention assignment or other restrictive agreements, and have counsel review any that may affect their role.
2. Use a strong confidentiality agreement. Every employee should sign a confidential information and invention assignment agreement (CIIAA) before starting. It should define confidential information, assign inventions to the company (with the notice required by Labor Code Section 2872), and require return of materials at departure. To recover exemplary damages and attorneys’ fees under the Defend Trade Secrets Act against an employee, the agreement should include the federal whistleblower immunity notice. It should also avoid overbroad restrictions, such as provisions that would bar employees from discussing wages or working conditions or reporting unlawful conduct. See what you need to know about CIIAAs.
3. Adopt a written confidentiality policy. Explain what is confidential, how it should be labeled and stored, and how to use personal devices and AI tools with company data. Have employees acknowledge the policy and provide training periodically, not just at onboarding.
During Employment
- Limit access. Grant access to sensitive systems on a need-to-know basis and review permissions regularly.
- Use technical safeguards. Multi-factor authentication, encryption, device management that allows remote wiping of lost or stolen devices, and logging of downloads and transfers help both prevent and detect misuse.
- Label and segregate. Mark key documents as confidential and keep the most sensitive material in restricted repositories.
- Be transparent about monitoring. If the company monitors company systems, tell employees, and consider California privacy rules that apply to employee personal information.
At Termination
Whether the departure is voluntary or not, follow a consistent checklist:
- Cut off access promptly. Disable accounts, change shared credentials, and remove the employee from company social media, cloud and code repositories.
- Recover property. Collect laptops, phones, badges and storage devices, and ask the employee to confirm in writing that they have returned or deleted all company information from personal devices and accounts.
- Hold an exit interview. Remind the employee of their continuing confidentiality obligations, provide a copy of the signed agreement, and ask where they are going and what they will be doing.
- Preserve evidence. Before wiping or reissuing a departing employee’s devices, consider whether they should be preserved, especially if there are signs of unusual downloads or transfers.
- Pay final wages on time. Final pay obligations apply regardless of trade secret concerns; see how to let an employee go.
Separation Agreements
A separation agreement can reinforce confidentiality obligations, require a certification that company materials have been returned, and include cooperation and release provisions in exchange for severance. It cannot be used to impose a non-compete or customer non-solicitation restriction on a California employee. Under Government Code Section 12964.5, it also must not prevent the employee from disclosing information about unlawful acts in the workplace, and it must include the required carve-out language and advise the employee of the right to consult an attorney with at least five business days to consider. See severance terms.
If You Suspect Misappropriation
Act quickly. Preserve evidence, consider a forensic review of devices and accounts, and send a measured reminder of obligations if appropriate. Remedies under state and federal trade secret law can include injunctions and damages, and the federal statute allows civil seizure in extraordinary circumstances. Claims must be brought within the applicable limitations period, generally three years from when the misappropriation was or should have been discovered.
The Takeaway
In California, protecting trade secrets depends on confidentiality, not non-competes. Sign the right agreements at hire, control access during employment, and run a disciplined exit process.
Frequently Asked Questions
Can I make employees sign a non-compete to protect trade secrets in California?
Generally no. California Business and Professions Code Section 16600 voids most employee non-compete agreements, and Section 16600.5 makes it unlawful to enter into or try to enforce them. Confidentiality agreements and trade secret law remain the main protections.
What makes information a trade secret?
Information qualifies if it has economic value because it is not generally known and the owner takes reasonable steps to keep it secret. Confidentiality agreements, access controls and exit procedures help show those reasonable steps.
What is the DTSA whistleblower notice?
The Defend Trade Secrets Act requires employers to notify employees of immunity for certain confidential disclosures to government officials or attorneys. If the notice is missing from an agreement, the employer may not recover exemplary damages or attorneys’ fees from that employee under the federal statute.
Can a separation agreement stop an employee from joining a competitor?
Not for a California employee. A separation agreement can reinforce confidentiality and require return of materials, but it cannot impose a non-compete or customer non-solicitation restriction.
How Sutter Law Can Help
Sutter Law’s employment law and compliance practice helps companies prepare confidentiality agreements, policies, onboarding and exit procedures, and separation agreements. Contact us for a free consultation.
This article is general information, not legal advice. Reading it does not create an attorney-client relationship.
