Yes, a California employer can sue a former employee who takes its trade secrets, but it can’t keep that employee from working for a competitor just because of what the employee knows. That line runs through both California and federal law, and it shapes the case whether your company is the one suing or the new employer that just got a demand letter. Either way, the dispute usually comes down to how precisely the secret can be described and whether the evidence shows it was taken or used.
Which information counts as a trade secret?
Information qualifies only if it has value because it’s secret and the owner took reasonable steps to keep it that way. California’s version of the Uniform Trade Secrets Act (CUTSA) defines a trade secret in Civil Code section 3426.1(d) as information, “including a formula, pattern, compilation, program, device, method, technique, or process,” that “Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use” and “Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”
The federal Defend Trade Secrets Act (DTSA) uses a similar test. Under 18 U.S.C. § 1839(3), information is a trade secret if “the owner thereof has taken reasonable measures to keep such information secret” and it derives independent economic value from not being generally known or readily ascertainable through proper means.
Misappropriation is the wrong the statutes punish. Under section 3426.1(b), it covers acquiring a trade secret while knowing or having reason to know it was obtained by improper means, and disclosing or using one without consent when the person knew or had reason to know it came through improper means or a duty of confidence. The same section says “Reverse engineering or independent derivation alone shall not be considered improper means.”
I think the secrecy element is where an employer’s claim most needs support, and it’s where a defendant usually looks first. A customer list that sat on a shared drive open to every salesperson, with no confidentiality agreement and no exit procedure, is hard to call the subject of reasonable secrecy efforts.
Can the former employer stop the employee from working for a competitor?
Not on the theory that the employee will inevitably use what they know. In Whyte v. Schlage Lock Co. (2002) 101 Cal.App.4th 1443, a published Court of Appeal opinion, the court rejected the “inevitable disclosure” doctrine that some other states use. The court explained: “We hold this doctrine is contrary to California law and policy because it creates an after-the-fact covenant not to compete restricting employee mobility.”
That fits California’s general rule against non-competes in Business and Professions Code section 16600, which voids contracts that restrain anyone “from engaging in a lawful profession, trade, or business of any kind.” Federal law doesn’t change the answer. The DTSA lets a court enjoin actual or threatened misappropriation, but under 18 U.S.C. § 1836(b)(3)(A)(i) the order may not “prevent a person from entering into an employment relationship,” any conditions on the new job “shall be based on evidence of threatened misappropriation and not merely on the information the person knows,” and the order may not “otherwise conflict with an applicable State law prohibiting restraints on the practice of a lawful profession, trade, or business.”
What a former employer can get is an order aimed at the secrets themselves. Civil Code section 3426.2(a) says “Actual or threatened misappropriation may be enjoined,” and subdivision (c) allows a court, “In appropriate circumstances,” to compel “affirmative acts to protect a trade secret,” which can include steps like returning files. The evidence has to show taking or use, or a real threat of it.
What does the employer suing have to identify before discovery starts?
The secret, with reasonable particularity. Code of Civil Procedure section 2019.210 says that in an action under CUTSA, “before commencing discovery relating to the trade secret, the party alleging the misappropriation shall identify the trade secret with reasonable particularity.” The identification can be kept confidential under section 3426.5, which directs the court to “preserve the secrecy of an alleged trade secret by reasonable means,” including protective orders and sealing.
The Court of Appeal in Advanced Modular Sputtering, Inc. v. Superior Court (2005) 132 Cal.App.4th 826, a published opinion, adopted a federal court’s description of the rule’s first purpose: “it promotes well-investigated claims and dissuades the filing of meritless trade secret complaints.” The same passage says the rule also keeps plaintiffs from using discovery to obtain the defendant’s own trade secrets.
For the defendant, this is the first real lever. A designation that lists customer information or pricing strategy without saying which information, and why it isn’t generally known, invites a challenge before any documents change hands. For the employer bringing the claim, it means the homework comes first: pin down what was taken before filing, not after.
What can each side recover?
Real money, and it can flow in either direction. Under Civil Code section 3426.3, a plaintiff may recover damages for actual loss and for unjust enrichment, or a reasonable royalty if neither is provable, and “If willful and malicious misappropriation exists, the court may award exemplary damages in an amount not exceeding twice any award made under subdivision (a) or (b).”
Fees can run the other way. Section 3426.4 says “If a claim of misappropriation is made in bad faith, a motion to terminate an injunction is made or resisted in bad faith, or willful and malicious misappropriation exists, the court may award reasonable attorney’s fees and costs to the prevailing party.” In FLIR Systems, Inc. v. Parrish (2009) 174 Cal.App.4th 1270, the Court of Appeal affirmed an award of “$1,641,216.78 in attorney fees and costs” against the companies that sued two former officers who planned to start a competing business. The trial court had found the action was brought in bad faith on an inevitable disclosure theory, and the Court of Appeal agreed with the trial court that “reasonable suspicion” was not enough.
The DTSA has parallel remedies in 18 U.S.C. § 1836(b)(3), including exemplary damages of “not more than 2 times the amount of the damages awarded” for willful and malicious misappropriation and fees to the prevailing party for a bad faith claim. It also allows a civil seizure order, but only “upon ex parte application but only in extraordinary circumstances,” under findings the statute spells out in detail.
One federal detail trips up employers that sue their own former employees. 18 U.S.C. § 1833(b)(3) requires an employer to give notice of the statute’s whistleblower immunity “in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” If it didn’t, “the employer may not be awarded exemplary damages or attorney fees” under the DTSA against that employee. The requirement applies to agreements “entered into or updated after the date of enactment of this subsection,” which was May 11, 2016.
How do the California and federal claims compare?
| Issue | California (CUTSA) | Federal (DTSA) |
|---|---|---|
| Where filed | State court, or federal court with jurisdiction (for example, alongside a DTSA claim) | Federal district courts have original jurisdiction, and the secret must relate to a product or service in interstate or foreign commerce (18 U.S.C. § 1836(b)(1), (c)) |
| Definition | Civ. Code § 3426.1(d) | 18 U.S.C. § 1839(3) |
| Identify the secret before discovery | Required by Code Civ. Proc. § 2019.210 | No equivalent requirement in the DTSA’s text |
| Injunction against working for a competitor | Inevitable disclosure rejected (Whyte) | Order may not prevent employment, and conditions require evidence of threatened misappropriation (§ 1836(b)(3)(A)(i)) |
| Exemplary damages | Up to twice damages, if willful and malicious (§ 3426.3(c)) | Up to 2 times damages, if willful and malicious. Against an employee whose agreement was entered into or updated after May 11, 2016, only if the immunity notice was given (§§ 1836(b)(3)(C), 1833(b)(3)) |
| Fees for a bad faith claim | Available to the prevailing party (§ 3426.4) | Available to the prevailing party, subject to the same immunity notice rule in actions against employees (§§ 1836(b)(3)(D), 1833(b)(3)) |
What if your company is the new employer being accused?
The new employer’s exposure depends on what it knew and what it used. Under section 3426.1(b)(2), using a trade secret is misappropriation when the user “knew or had reason to know” it was derived from someone who owed a duty to keep it secret. A company that hires from a competitor and never asks what the new hire brought along is building the “reason to know” record for the other side.
I think the best defense here is built before the dispute starts. Written onboarding instructions not to bring or use any former employer’s documents, a signed certification from the new hire, and a quick response if something turns up anyway are what let a new employer say, credibly, that it wanted the person’s skills and not the competitor’s files. When a demand letter arrives, the new employer also has the Whyte and FLIR line of authority on its side if the claim is really about the hire itself.
What should an employer do when a departure turns into a trade secret dispute?
The steps are the same at the start whichever side your company is on:
- Put a litigation hold on the departing or arriving employee’s company email, devices, cloud accounts, and access logs, along with the confidentiality agreements, onboarding and exit paperwork, and any policy on handling confidential information.
- Calendar the response deadline on any demand letter or complaint, and check the employment agreements for an arbitration clause and the company’s insurance for notice requirements.
- Identify the people who dealt with the employee during the transition, and make sure nobody takes action that could look like retaliation against the employee or anyone who reported the concern.
- Pull the documents the claim depends on, including forensic evidence of downloads, transfers, or deletions, and a list of exactly which information the company says is secret and how it was protected.
- Talk to a lawyer before sending a demand letter or responding to one, contacting the employee or the other company, or offering anything to settle.
The firm’s trade secret litigation page covers disputes that arise from employee departures, and its page on employer defense in California employment cases covers the related contract and retaliation claims that can travel with these disputes.
Trade secret questions from California employers
Is a customer list a trade secret?
It can be. CUTSA’s definition expressly includes a “compilation,” so a customer list with pricing and buying history may qualify if it has value because competitors don’t have it and the company took reasonable steps to keep it secret. A list built from public directories, or shared freely inside the company, is a much harder case. The answer depends on the specific information and how it was protected.
What if the employee forwarded files to a personal account before leaving?
That can be strong evidence, and it should be preserved immediately. But the evidence still has to show actual or threatened misappropriation. In FLIR, the court treated the argument that a hard drive download was a “threatened” misappropriation as a restatement of the inevitable disclosure theory on the facts of that case. In my view, a forensic review that shows what was taken, and whether anyone opened or used it, matters more than the download alone.
Do we need to update our confidentiality agreements for the DTSA?
If the company wants the option of exemplary damages or attorney fees under the DTSA against an employee, yes. Section 1833(b)(3) requires notice of the whistleblower immunity in employee agreements governing confidential information, or a cross-reference to a policy document that sets out the employer’s reporting policy. The rule also covers contractors and consultants. It applies to agreements entered into or updated after May 11, 2016.
If a trade secret dispute followed someone out (or in) the door
If your company has lost files with a departing employee, or a competitor says your new hire brought its secrets, the forensic record and the precise description of the secret usually decide the case. Rosenberger + Kawabata represents employers defending employment lawsuits and claims through its business litigation practice, including claims involving trade secret misappropriation. Contact Rosenberger + Kawabata online for a confidential consultation, or call (310) 894-6921.
Sources
The California statutes are Civil Code section 3426.1, section 3426.2, section 3426.3, section 3426.4, and section 3426.5; Code of Civil Procedure section 2019.210; and Business and Professions Code section 16600. The federal statutes are 18 U.S.C. § 1833, § 1836, and § 1839. The cases are Whyte v. Schlage Lock Co. (2002) 101 Cal.App.4th 1443, Advanced Modular Sputtering, Inc. v. Superior Court (2005) 132 Cal.App.4th 826, and FLIR Systems, Inc. v. Parrish (2009) 174 Cal.App.4th 1270.
This post is general information about California and federal employment law as of November 5, 2026. It is not legal advice, and reading it does not create an attorney-client relationship. Employment statutes, regulations, and court decisions change often, and the outcome of any claim depends on its facts. Past results do not guarantee future outcomes.