On Wednesday, May 11, 2016, President Obama signed the Defend Trade Secrets Act of 2016 (“DTSA”). The DTSA is a federal trade secret protection statute. Until now, trade secret protection has generally been a matter of state law. Because individual state laws may differ, federal trade secret protection law will likely lead to more consistent trade secret protection across the country.

There are several features of the DTSA that are noteworthy, but we think that the following are the most pressing for employers:

  • Immunity for Whistleblowers: The DTSA provides individuals with immunity from criminal and civil liability for disclosure of a trade secret (1) confidentially to the government for the purpose reporting or investigating a suspected violation of the law; (2) in a complaint or lawsuit filed under seal in court or other legal proceeding; or (3) to an individual’s attorney for use in a court proceeding. In order for immunity to apply, individuals who use trade secrets in court proceedings must file the trade secrets under seal, and may not disclose the trade secret except as allowed by court order.
  • Notice requirements in all confidentiality agreements with employees: For an employer to enjoy all of the remedies available to it under the DTSA against an employee and certain others (see below) who may have misappropriated trade secrets, the employer must first have given notice to the employee of the whistleblower immunity described above. The notice of immunity may be provided to the employee either by language inserted into an agreement with the employee that governs protection of trade secrets or confidential information, or by providing the information to the employee in a policy document. This notice requirement applies only to agreements with employees that are entered into or updated after the enactment of the DTSA (i.e. on or after May 11, 2016).

Action Items: The act defines the term “employee” to include “any individual performing work as a contractor or consultant for the employer.” Thus, it is crucial that employers ensure that, going forward, confidentiality agreements with employees, contractors and consultants include the notice requirements in the DTSA. Failure to include these notice requirements will result in the employer’s inability to access key remedies contained in the DTSA for trade secret theft. These remedies include exemplary damages and attorney fees.

We suggest three options which will ensure that employers comply with the notice requirements:

Option 1: The most straightforward approach would be to put the required notice language directly into the confidentiality agreement signed by the employee. This has the benefit of ensuring that there is contemporaneous documentary evidence that the required notice was given. To ensure compliance, we recommend including the key text from the statute, until there is judicial guidance supporting more concise contract language. As a result, this approach will add substantial text to what usually are already lengthy agreements.

Option 2: The statute includes an alternative to Option 1. It allows the employer to reference the employer’s whistleblower policy in each confidentiality agreement. This option is available only if the employer has evidence that it provided the employee, contractor, or consultant with the policy document. Thus, an employer following this approach should provide a copy of the policy to each employee, contractor and consultant signing a confidentiality agreement at the time that the agreement is signed and take care to obtain the individual’s signature acknowledging receipt of the policy. The whistleblower policy should also be drafted or updated to include language which reflects the notice requirements in the DTSA. This option, however, creates some administrative difficulties and could lead to problems in proving that that notice requirement was satisfied.

Option 3: Another option is to provide the required notice language in an attachment to the confidentiality agreement which attachment is referenced by and incorporated into that agreement, and which is signed by the employee at the time the agreement is executed.

Whatever the employer’s preference, one of these options should be considered with legal counsel and implemented to ensure full protection of important trade secrets and confidential information.