Employers should consider revising their company confidentiality polices, nondisclosure agreements and noncompete agreements to take full advantage of the new federal trade secret protection. The recently enacted Defend Trade Secrets Act (Act) provides employers with a federal cause of action to address trade secret misappropriation by employees. The Act is expected to result in a more consistent application of trade secret protection in federal courts in contrast to applying state variations of the Uniform Trade Secrets Act, which the Act tracks in substantial form by including essentially identical definitions for “trade secrets” and “misappropriation.” The Act gives employers the option to bring cases in the federal court system, which can be more efficient and better equipped to handle such cases.
Importantly, employers may seek recovery of punitive damages and attorneys’ fees under the Act only if they have notified employees of their immunity from liability under the Act in the case of the confidential disclosure of trade secrets to a government official solely for whistleblower purposes or in a sealed court filing. This immunity notice must be provided in the nondisclosure or noncompete agreement, or those agreements can cross-reference a confidentiality policy that outlines this exception. Accordingly, employers should take note of the following:
- The immunity notice requirement only applies to nondisclosure or noncompete agreements executed on or after May 11, 2016. Accordingly, current employees do not need to sign revised nondisclosure or noncompete agreements.
- However, nondisclosure agreements, noncompete agreements and confidentiality policies should be updated for new hires so that employers retain the ability to seek punitive damages and attorneys’ fees under the Act.
- Noncompete agreement forms should also be updated regularly to address best practices and comply with state law requirements.