In May 2016, President Obama signed the Defend Trade Secrets Act (DTSA) into law. Prior to enactment, trade secret law had been left to the states, most of which have adopted the Uniform Trade Secrets Act.
The DTSA allows for a federal cause of action for misappropriation of trade secrets, available in conjunction with state law claims. Relief available under the new law includes attorney’s fees and some punitive damages. In order to enjoy the DTSA’s protections, employers must provide notice of the new law’s immunity and anti-retaliation provisions.
Immunity & Anti-Retaliation Provisions
The DTSA contains immunity and anti-retaliation protections for individuals who may need to reveal trade secrets. Specifically, immunity is granted to individuals who disclose a trade secret that is made:
- Directly or indirectly in confidence to a federal, state, or local government official
- To an attorney for the sole purpose of reporting or investigating a suspected violation of the law
- In a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal
Employers are required to provide notice of the above immunity and retaliation provisions to employees, consultants, and independent contractors in any contract or agreement entered into after May 11, 2016, that governs the use of trade secrets or other confidential information. This includes the following types of documents:
- Employment agreements
- Independent contractor agreements
- Consulting agreements
- Separation and release of claims agreements
- Severance agreements
- Non-compete and non-solicitation agreements
- Confidentiality and proprietary rights agreements
- Similar agreements included in employee handbooks
Ways to Provide Notice
Employers have two options of how to provide the required notice.
1) Incorporate specific DTSA language in all employment-related documents governing trade secrets and confidential information. The language is below:
Pursuant to the Defend Trade Secrets Act of 2016, I understand that:
An individual may not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that: (a) is made (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (b) is made in a complaint or other document that is filed under seal in a lawsuit or other proceeding.
Further, an individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the employer’s trade secrets to the attorney and use the trade secret information in the court proceeding if the individual: (a) files any document containing the trade secret under seal; and (b) does not disclose the trade secret, except pursuant to court order.
2) Insert a cross-reference into employment-related documents governing trade secrets and confidential information, to a policy that includes the employer’s procedures for reporting a suspected violation of the law, like the company’s whistleblower policy. However, this policy must include the two paragraphs listed above. An example of the cross-reference is below:
Notwithstanding any other provisions of this Agreement, you may be entitled to immunity and protection from retaliation under the Defend Trade Secrets Act of 2016 for disclosing a trade secret under certain limited circumstances, as set forth in Company’s [NAME OF EMPLOYER’S REPORTING POLICY].
Consequences of Not Providing Notice
Currently, there is no penalty for employers who fail to provide notice. However, under the DTSA, employers who do not provide notice are unable to recover punitive damages or attorney’s fees from employees. Further, not providing notice could lead to negative contractual consequences or harm a company during a governmental audit.