Recent developments show that employers face both incentives and threats from the Obama Administration designed to ensure that employees know of their right to engage in “whistleblowing” (i.e., sharing possible unlawful activity with government agencies). Two recent examples are the federal Defend Trade Secrets Act (DTSA) and recent enforcement actions by the Securities and Exchange Commission (SEC).
The DTSA, enacted on May 11, 2016, provides employers with the right to recover greater damages if an employee has misappropriated trade secrets “willfully and maliciously.” But, the ability to recover these greater benefits are available only if the employer has informed employees of their right to disclose trade secrets without any civil or criminal liability if done solely in whistleblowing – i.e., if shared with a government official or attorney “solely for the purpose of reporting or investigating a suspected violation of law” or in filing a lawsuit with the trade secrets under seal. Thus, while the DTSA provides employers with the possibility of obtaining greater benefits, it requires employers to disclose in writing the employees’ immunity from prosecution if the trade secret disclosure occurs solely as part of a whistleblowing activity.
Many employers have passed on the incentive offered in the DTSA, especially given that employers can obtain similar relief under the law in the many states which have adopted the Uniform Trade Secrets Act, which requires no notice of employees’ immunity. However, circumstances appear to be dwindling under which a public employer may choose not to notify employees of their right to engage in whistleblowing.
The SEC recently pursued enforcement actions against two public companies, BlueLinx Holdings and Health Net, (discussed here). The SEC assessed significant monetary penalties for the failure of these companies to clarify in their respective severance agreements that employees had the right to share information with federal government agencies and to receive the incentive awards designed to assist the SEC’s enforcement efforts.
In light of this pressure, employers may want to consider adopting policies in handbooks, in compliance with the DTSA, explaining that employees are not prohibited from sharing accurate and truthful information with governmental agencies with oversight authority over the employer. A cross reference to such a policy in employment agreements appears to be all that is required under the DTSA for the employer to have access to greater damages (attorney’s fees and exemplary damages) in the event trade secrets are improperly disclosed. Such policies could be included within Ethics and Integrity policies in which employees are encouraged to report to the employer any concerns regarding violations of the law, and such policies may even request (but not insist on) notice to the employer if an employee has been contacted by the government. The policy should also include a provision that employees (perhaps at a certain level) will be required to undergo an exit interview in which they are asked to disclose any concerns regarding claimed breach of any applicable law or regulation they have not previously disclosed. Such policies can be quite valuable when defending subsequent retaliatory discharge or qui tam actions as employees can be questioned closely as to why they failed to be transparent themselves regarding any concerns related to unlawful conduct within the organization.
Certainly, given these developments, employers are advised to reconsider notifying employees of their right to communicate with governmental agencies, rather than rejecting the concept out of hand.