Nondisclosure Agreements and Protecting Intellectual Property: California’s SB 699 and AB 1076

California continues to refine its legal landscape to better protect intellectual property (IP) and regulate employment agreements. Senate Bill 699 (SB 699) passed on September 15, 2023, and Assembly Bill 1076 (AB 1076), signed into law on October 13, 2023, both took effect on January 1, 2024. These laws mark significant steps in focusing on the use of nondisclosure or confidentiality agreements to safeguard IP and further regulate noncompete agreements. In this post, we’ll delve into the details of SB 699 and AB 1076, their implications for employers and employees, and how they aim to protect intellectual property.

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Understanding SB 699 and AB 1076

SB 699 addresses the need for stronger protections against the misappropriation of intellectual property. AB 1076 strengthens state restrictions on noncompete agreements and works in conjunction with SB 699 to create a comprehensive framework for employment contracts and IP protection.

Key Provisions of SB 699

SB 699 fortifies the legal framework protecting intellectual property through several key provisions:

• Void Non-compete Agreements: SB 699 ensures that any noncompete agreement that is void under California law remains unenforceable regardless of where and when it was signed. Even if an agreement was signed in another state, it is still unenforceable in California.
• Nondisclosure Agreements (NDAs): SB 699 encourages the use of NDAs to protect sensitive business information, trade secrets, and other intellectual property from being disclosed or misused by employees or third parties.
• Strengthening IP Protections: The bill provides clearer guidelines on what constitutes a trade secret and the legal recourse available if such secrets are unlawfully disclosed.
• Employer Responsibilities: Employers are required to take reasonable steps to safeguard their intellectual property, including implementing comprehensive NDAs with employees and contractors.
• Penalties for Violation: SB 699 outlines significant penalties for individuals or entities that breach NDAs and unlawfully disclose protected information.

Key Provisions of AB 1076

AB 1076 focuses on the regulation of noncompete agreements and works alongside SB 699 to reinforce California’s stance against such agreements. Key provisions include:

• Unlawful Non-compete Clauses: AB 1076 codifies existing case law that renders noncompete clauses in employment contracts void, regardless of how narrowly tailored they are. It explicitly makes it illegal to include non-compete clauses in employment contracts or require employees to agree to such clauses.
• Notice Requirement: Employers must notify current and former employees who were employed after January 1, 2022, and were subject to noncompete agreements that their agreements are void. The notice deadline was February 14, 2024, and failure to comply can result in civil penalties.
• Extension to Non-Parties: The bill extends the prohibition to contracts that restrain individuals who are not parties to the contract, potentially affecting business-to-business agreements that indirectly restrict employment opportunities.
• Private Right of Action: AB 1076, in conjunction with SB 699, allows private rights of action for individuals seeking to enforce the voiding of noncompete agreements.

Implications for Employers and Employees

The legislative changes carry significant implications for both employers and employees:

• For Employers:
  • Enhanced Legal Tools: Employers now have stronger legal tools to protect their intellectual property through enforceable NDAs.
  • Compliance Obligations: Businesses must ensure their NDAs comply with the new legal standards and effectively protect their trade secrets.
  • Risk Management: Companies need to adopt comprehensive IP protection strategies to mitigate risks associated with IP theft or unauthorized disclosures.
• For Employees:
  • Clear Guidelines: Employees will benefit from clearer guidelines regarding the use of NDAs and their rights and obligations under these agreements.
  • Increased Awareness: Workers must be aware of the legal implications of disclosing proprietary information and the potential penalties for violations.
  • Fewer Restrictions: Greater job mobility and the freedom to pursue career opportunities without being hindered by restrictive non-compete clauses.

Effective Strategies for Implementing Nondisclosure Agreements

To comply with SB 699 and AB 1076, employers should consider the following strategies:

1. Develop Comprehensive NDAs: Draft NDAs that clearly define what constitutes confidential information, the scope of confidentiality, and the duration of the agreement.
2. Regular Training and Communication: Conduct regular training sessions to educate employees about the importance of protecting intellectual property and the specifics of the NDAs they sign.
3. Implement Robust Security Measures: Use technology to secure sensitive information, including encryption, secure access controls, and monitoring systems.
4. Periodic Reviews and Updates: Regularly review and update NDAs to ensure they remain compliant with current laws and effectively protect the company’s IP.
5. Legal Consultation: Engage legal experts to draft and review NDAs, ensuring they meet the stringent requirements set by SB 699 and align with best practices for IP protection.

The Broader Impact of SB 699 and AB 1076

These legislative changes underscore California’s commitment to protecting intellectual property and maintaining a fair business environment. By focusing on NDAs and clarifying the legal landscape around IP protection, SB 699 and AB 1076 help safeguard innovation and competitiveness within the state.

Resources for Employers

For more detailed guidance on complying with SB 699 and understanding AB 1076, employers can refer to various resources:

• Full Text of SB 699
• Full Text of AB 1076
• California Governor Signs Law Prohibiting Employers from Entering Non-compete Agreements
• CDA: Noncompete Agreements are Void and Prohibited by Law in California

Conclusion

SB 699 and AB 1076 represent significant legislative efforts to protect intellectual property in California. By understanding these laws and implementing effective nondisclosure agreements, employers can safeguard their IP and foster a secure business environment. Staying informed and proactive is key to compliance and ensuring that both employers and employees are protected under these new regulations.

By taking these steps, employers can not only comply with the new laws, but also make a meaningful impact on the security and competitiveness of their business operations.