NDA vs. Non-Compete in California: What's Actually Enforceable

Business owners often reach for two contracts when an employee or contractor leaves: a non-disclosure agreement (NDA) to keep secrets in, and a non-compete to keep the person from joining a rival. In most states both can work. In California, only one of them reliably does. Understanding why is essential, because the wrong agreement can be unenforceable, expensive to defend, and in some cases a violation of state law.

This guide explains, in plain English, what each agreement does, why California treats them so differently, and how a confidentiality clause can quietly cross the line into an illegal non-compete. It is general education, not legal advice. For the bigger picture of how IP rights work in the state, start with our California IP pillar guide.

What each agreement actually does

An NDA, also called a confidentiality agreement, is a promise not to disclose or misuse certain information. It does not stop anyone from working anywhere. It says: whatever you learn here that is confidential, you keep confidential, whether you stay or leave. NDAs are a core tool for protecting trade secrets, customer data, source code, formulas, and similar information. They are also one of the “reasonable measures” the law expects you to take to keep a trade secret protectable in the first place.

A non-compete is fundamentally different. It does not protect a specific piece of information; it restricts where and for whom a person can work. A typical non-compete might say a departing employee cannot work for a competitor, or cannot work in the same industry, for some period of time within some geographic area. The point is not secrecy. The point is preventing competition itself.

That distinction, secrecy versus restraint on working, is the whole ballgame in California. The state lets you protect the first and not the second.

Why California enforces NDAs but voids non-competes

California has the most employee-friendly stance on competition in the country, and it is written into statute. Business and Professions Code section 16600 provides that, with narrow exceptions, every contract by which someone is restrained from engaging in a lawful profession, trade, or business is void to that extent. As amended, the law is to be read broadly to void employee non-competes no matter how narrowly tailored they are, unless they fit one of a few statutory exceptions (which mostly involve the sale of a business or dissolution of a partnership, not ordinary employment).

The legislature reinforced this in 2024 with section 16600.5. That provision makes a contract void under 16600 unenforceable regardless of where or when it was signed, so an out-of-state non-compete cannot be enforced against someone working in California. It also makes it a civil violation for an employer to even enter into or attempt to enforce a void non-compete, and it lets a current, former, or prospective employee sue for injunctive relief and actual damages, plus attorney’s fees. In short, using a non-compete in California is not just unenforceable; it can be affirmatively risky for the employer.

NDAs sit on the other side of that line. Nothing in section 16600 prohibits an agreement to keep genuine secrets confidential, because a properly scoped NDA does not restrain anyone from working, it only restrains them from taking your secrets when they go. California protects trade secrets through the California Uniform Trade Secrets Act, and confidentiality agreements are a standard, accepted way to do that. So a focused NDA generally survives, while a non-compete generally does not.

For a deeper look at the non-compete side specifically, see our guide on whether California non-competes are enforceable.

The real danger: NDAs and non-solicits that act as hidden non-competes

Here is where many well-intentioned employers get into trouble. California courts do not just look at the label on a clause; they look at what it actually does. A clause called “confidentiality” or “non-solicitation” can be struck down if, in practice, it operates as a de facto non-compete.

The leading example is AMN Healthcare, Inc. v. Aya Healthcare Services, Inc. (2018). Two competing travel-nurse staffing companies fought over former recruiters who left one for the other. The departing employees had signed a confidentiality and non-disclosure agreement that also barred them from soliciting any of the company’s employees for a year. The California Court of Appeal held that the employee non-solicitation provision was void under section 16600, because for recruiters whose entire job is soliciting people, the clause effectively restrained them from practicing their profession. The court enjoined enforcement of the provision and awarded the defendants roughly $169,000 in attorney’s fees. The same opinion signaled that an overbroad confidentiality provision could be invalid to the extent it stopped someone from working in their field.

Courts have pushed the same logic onto confidentiality clauses directly. In Brown v. TGS Management Co. (2020), a California appellate court found that a confidentiality provision defined so sweepingly, covering essentially all information the employee might use, operated as a de facto non-compete and was therefore void. The lesson is blunt: an NDA that is written to capture everything an employee knows, rather than identifiable secrets, can read like a ban on ever working in the industry again, and California will treat it accordingly.

So the failure mode is not “NDAs are bad.” It is “overbroad NDAs and non-solicits behave like non-competes, and California voids non-competes.” The breadth is the problem.

What a defensible California NDA looks like

A confidentiality agreement that holds up in California tends to share a few features. None of this is legal advice, and the right drafting depends on your facts, but the pattern is consistent:

• It protects identifiable information, not everything. Strong NDAs define confidential information with reasonable specificity, customer lists, pricing models, source code, formulas, rather than sweeping in general skills, industry knowledge, or anything the employee touches.
• It does not bar future employment. The agreement restricts disclosure and use of secrets, not where the person can work or for whom. The moment it starts dictating future employers or industries, it drifts toward an unenforceable non-compete.
• It excludes general knowledge and skill. Employees are allowed to take their own expertise and experience with them. A defensible NDA leaves room for that and targets only the company’s actual confidential material.
• It carves out the obvious exceptions. Information that is already public, that the person knew beforehand, or that they develop independently is typically excluded, which keeps the clause focused on real secrets.
• It is paired with actual secrecy practices. An NDA is only one of the “reasonable measures” trade secret law expects. Access controls, labeling, and limited disclosure all reinforce both the agreement and the underlying trade secret. For more on that, see how to protect a trade secret in California.

The throughline: protect the secret, not the competition. An NDA that stays on the “secret” side of the line is doing the job the law allows.

What actually protects a California business instead of a non-compete

If you cannot stop a former employee from competing, what can you do? California’s answer is that you protect your assets directly rather than restraining people. The practical toolkit looks like this:

• Trade secret protection. This is the big one. The California Uniform Trade Secrets Act and the federal Defend Trade Secrets Act let you go after someone who misappropriates your secrets, taking, using, or disclosing them improperly, even after they leave. That protects the information itself, which is usually what you were actually worried about. Explore the trade secrets topic hub for more.
• Well-scoped NDAs. As above, a focused confidentiality agreement keeps your secrets contractually protected without restraining anyone’s career.
• Protecting the actual secrets operationally. Limiting access, using need-to-know permissions, securing systems, and identifying what is truly confidential all strengthen your legal position if information walks out the door.
• Customer and goodwill protection through trade secret law, not blanket non-solicits. A broad ban on contacting customers can be struck down, but using genuinely confidential customer information improperly can still be actionable as misappropriation.
• Clear IP ownership agreements. Making sure inventions, code, and creative work created on the job belong to the company keeps those assets with the business no matter who leaves.

The mindset shift is the point. In most states you build a moat around the person. In California you build it around the information and the assets.

The bottom line

In California, the NDA-versus-non-compete question has a clear default: NDAs that protect genuine secrets are generally enforceable; non-competes generally are not. Section 16600 voids employee non-competes broadly, and section 16600.5 makes them unenforceable regardless of where they were signed, while exposing employers who use them to civil liability. A confidentiality or non-solicitation clause is not automatically safe just because of its label, if it is so broad that it stops someone from working in their field, courts like those in AMN Healthcare and Brown v. TGS will treat it as a disguised non-compete and strike it down. Protect the secret, not the competition, and pair a focused NDA with real trade secret practices.

This article is general legal education, not legal advice, and reading it does not create an attorney-client relationship. California’s competition and trade secret rules are detailed and fact-specific, and they change. Before drafting, signing, or trying to enforce any confidentiality or non-compete agreement, consult an attorney licensed in your jurisdiction.