The new Defend Trade Secrets Act (“DTSA”) allows owners of trade secrets to now bring a civil action in federal court to protect their trade secrets and confidential information. Further, under the DTSA, a trade secret owner may be awarded actual damages, injunctive relief, restitution, the extraordinary relief of ex parte seizure orders and, if there is willful or malicious misappropriation, exemplary damages (up to double damages) and attorneys’ fees. Although the DTSA is a big win for employers seeking to protect their trade secrets and confidential information, employers may be precluded from being awarded exemplary damages and attorneys’ fees if the employee’s confidentiality agreement does not contain an express exception for disclosures related to whistleblowing.
Whistleblowers Permitted to Disclose Trade Secrets
The DTSA requires that an employer set forth in an employee confidentiality agreement the so-called “Whistleblower Immunity” provision of the DTSA, notifying employees that they will not be in violation of the DTSA if they use or disclose trade secrets or confidential information for the purposes of whistleblowing against the employer. This requirement applies only to contracts or agreements signed after May 11, 2016, the date the DTSA was signed into law.
The DTSA “Whistleblower Immunity” provision states:
Immunity from Liability for Confidential Disclosure of a Trade Secret to the Government or in a Court Filing
- Immunity: An individual shall 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 filed in a lawsuit or other proceeding, if such filing is made under seal.
- Use of Trade Secret Information in Anti-Retaliation Lawsuit: An individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual 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.
Should You Include the Whistleblower Immunity Provision?
At first glance, some employers may consider foregoing the exemplary damages and attorneys’ fees available under the DTSA in order to avoid any written suggestion about whistleblowing to employees. Nevertheless, employers already are required to set forth specific exceptions to their nondisclosure obligations in order to accommodate various other employee rights, which an employer may not consider harmonious with its own self-interest. For example, confidentiality agreements for non-managerial employees must not interfere with such employees’ rights to engage in concerted activity protected by the National Labor Relations Act. As a result, some courts have required an explicit reference to the right to protected concerted activity under the NLRA in non-managerial employee confidentiality agreements. Likewise, some courts have refused to enforce confidentiality agreements which lack an explicit statement that nondisclosure obligations did not apply to disclosures required in response to a subpoena or court order, or as otherwise required by law. Consequently, courts could similarly refuse to enforce confidentiality agreements signed after May 11, 2016 (the effective date of the DTSA), if they do not recite Whistleblower Immunity — even if an employer is not seeking to enforce such an agreement under the DTSA.
Thus, employers should be sure to include the provision in agreements for new hires and in new agreements for existing employees. Employers who may be reluctant to include the language in the body of their agreements are also permitted to establish a policy that sets forth the Whistleblower Immunity language, provided that the policy is referenced in the employee agreements.
Impact on Independent Contractors
Finally, it is important to keep in mind that the DTSA applies to any “contract or agreement with an employee that governs the use of a trade secret or other confidential information,” and the DTSA defines “employee” to include “any individual performing work as a contractor or consultant for an employer.” As a result, agreements with independent contractors and consultants who are individuals which include provisions not to disclose trade secrets or confidential information, also should incorporate the Whistleblower Immunity provision. Although the Whistleblower Immunity provision is directed to an “individual,” courts that are tasked in the future with enforcing the DTSA may consider independent contractors that are sole proprietorships or single member LLCs to be an “individual” as well. Thus, companies and in-house counsel may wish to consider adding the Whistleblower Immunity provision to contracts with such sole proprietorship or single member LLC independent contractors.
For more about other aspects of the DTSA, please see my colleague, Stephen Y. Chow’s, recent article: “The Defend Trade Secrets Act of 2016.”