November 2019

Nondisclosure and confidentiality agreements can be an essential part of your business. These agreements protect the confidentiality of the trade secrets and important data for your company. They are not just for inventors or companies with secret recipes, though. They are necessary for any business that might be disclosing information that is commercially valuable or that may be required to be protected under state and/or federal law.

Starting January 1, 2020, the California Consumer Privacy Act (the “CCPA”) begins. This new law will require consumer information to be kept private and confidential, among other things. As part of this law, effective and enforceable nondisclosure and confidentiality agreements tailored to your operations will be even more important for your business.

Consumer Data Access

In today’s world, it is rare that a company does not collect at least a little bit of data from its consumers. At minimum, the company will likely collect the basic information such as name, address, phone number, email, and shipping address. Under the consumer CCPA, even that information must be kept confidential. Considering that many of your employees may have access to that information, a confidentiality agreement or nondisclosure agreement will be absolutely necessary for any employees who have access to databases, computer systems, or other forms of data storage.

To make it worse, the CCPA’s definition of “consumer” is very broad, providing that any natural person who is a California resident is considered a “consumer” for purposes of the CCPA. This definition extends to cover employees who are residents of California. The fact that a person’s relationship with a business is as an employee, and not a consumer of the goods and services of the business, is irrelevant for this purpose.

Proprietary Information Disclosure/Access

Aside from employee and consumer data, nondisclosure and confidentiality agreements are also a must for anyone who has access to your company’s information including customer habits, customer lists, vendor sources, inventions, business models, and trade secrets. Your trade secrets are especially valuable and must be kept confidential in order to be afforded legal protection. While a court will not punish theft of a trade secret if you have not done anything to protect it, it may punish YOU for allowing the theft to occur without taking necessary precautions.

A critical step in taking those precautions is to create a proper nondisclosure or confidentiality agreement. Do not limit your concept of “access” to the person who has access to your computer or provides network maintenance. Consider your marketing department, outside marketing consultant, or vendors that may have access to that information, as well.

Mergers, Potential Investors, and Acquisitions

If you are considering selling your business or merging with another company, you need to have nondisclosure and confidentiality agreements signed by everyone involved. A potential buyer will often want to see trade secrets to ensure their purchase is valid, as will potential investors or new business partners. Ensure that everything is protected in the event the deal falls through.

Dallas N. Verhagen

(Direct) 805.966.4225

DISCLAIMER:  This Advisor is one of a series of business, real estate, employment, estate planning and tax bulletins prepared by the attorneys at Fauver, Large, Archbald & Spray, LLP. This Advisor is not exhaustive, nor is it legal advice. You should discuss your particular situation with us or with your own attorney. Our legal representation is only undertaken through a written engagement letter and not by the distribution or use of this Advisor.