A California Non-Disclosure Agreement (NDA) is a confidentiality contract that protects trade secrets and proprietary information while fully complying with California's strict ban on non-compete clauses—meaning it safeguards what you share without illegally restricting where the other party can work.

What Is a California NDA?

Definition: A California Non-Disclosure Agreement is a legal contract that binds parties to secrecy regarding proprietary information (such as code, client lists, or inventions). Crucially, a valid California NDA protects trade secrets without restricting a worker's right to future employment, adhering to California Business and Professions Code Section 16600.

This distinction matters because California has the strongest non-compete ban in the nation. If your NDA contains any language that could prevent someone from working in their field—even indirectly—it may be void entirely.

Why "Generic" NDAs Are Dangerous in California

Most free NDA templates available online were written for states where non-compete agreements are legal and enforceable. Using them in California creates three serious risks.

The SB 699 & Non-Compete Ban

As of January 1, 2024, California SB 699 makes it a civil violation to include OR attempt to enforce any clause that restrains someone from engaging in their profession. This applies regardless of where the contract was signed.

The penalty: up to $2,500 per violation, plus the other party's attorney's fees.

Generic NDAs often include language like "Receiving Party shall not use Confidential Information to compete with Disclosing Party." In Texas, that's a standard protective clause. In California, it's a backdoor non-compete that could void your entire agreement.

In 2022, a California judge ruled that Google's confidentiality agreements were so broad they violated Section 16600 because employees couldn't discuss their work with potential employers. If Google's legal team got it wrong, template generators certainly can.

The "Whistleblower" Immunity Clause

Here's a trap almost nobody knows about: under the federal Defend Trade Secrets Act (18 U.S.C. § 1833(b)), if your NDA doesn't include notice that employees can disclose trade secrets to government officials when reporting suspected violations, you lose the ability to recover enhanced damages in any trade secret lawsuit.

You can still win your case. But without this clause, you cannot recover exemplary damages or attorney's fees. Most free templates don't include it.

Defining "Trade Secrets" vs. "Confidential Info"

Under California's Uniform Trade Secrets Act (Civil Code § 3426.1), a trade secret must:

1. Derive economic value from not being generally known
2. Be subject to reasonable efforts to maintain secrecy

General business information doesn't automatically qualify. This template distinguishes between general confidential information (time-limited protection, typically 2-5 years) and true trade secrets (protected indefinitely, as long as they remain secret).

Why does this matter? If you call everything a "trade secret" when it isn't, courts may refuse to protect any of it.

What's Included in This Template? (Key Clauses)

Mutual vs. Unilateral Options

The download includes both versions:

• One-Way (Unilateral): Use when you're the only one sharing information—pitching to investors, hiring contractors, licensing discussions.
• Mutual (Two-Way): Use when both parties will share confidential information—partnerships, M&A due diligence, joint ventures.

Using mutual when you're only disclosing creates unnecessary liability. Using unilateral when both sides share creates gaps.

The "Residuals" Clause Negotiation

A residuals clause allows the receiving party to use "ideas, concepts, know-how, and techniques retained in unaided memory" after the relationship ends. This is standard in tech and pharma deals but rarely appears in free templates.

Without it, you're technically claiming that a developer who saw your code can never work in software again. Courts won't enforce that. The template includes optional residuals language you can include or exclude based on your negotiation.

Exclusions from Confidentiality

Standard carve-outs ensure you aren't liable for information that was:

• Already publicly available
• Known to the receiving party before disclosure
• Independently developed without reference to your information
• Required to be disclosed by law

These exclusions are legally expected. An NDA without them may be seen as overreaching.

Who Needs This Document?

How to Execute a Valid California NDA

Step 1: Choose the Type

Decide if you need a One-Way or Mutual agreement based on who's sharing information.

Step 2: Define the Purpose

Be specific. Instead of "Business Discussions," write "Evaluating a potential partnership regarding Project X inventory management system."

Step 3: Mark Your Documents

The NDA works best when you actually label your files "CONFIDENTIAL" before sending them. This establishes the "reasonable secrecy efforts" required for trade secret protection under CUTSA.

Step 4: Sign Before Sharing

Never share sensitive information before the agreement is signed. The NDA only protects information disclosed after execution.

Already Receiving NDAs from Clients?

This template helps when you're the one sending the agreement. But what about when someone sends you an NDA to sign?

Before signing any confidentiality agreement, review it for California-specific red flags: void non-compete language, overly broad definitions that could restrict your career, or missing whistleblower immunity provisions.

Contract Analyze uses AI to instantly identify risky clauses, compare terms against California law, and flag provisions that need negotiation—saving hours of manual review.