The Defend Trade Secrets Act (DTSA) incentivizes employers to update their employment contracts to give notice to employees of the protections offered by the act. In this context, “employees” include independent contractors and consultants as well as traditional common law employees.  The notice provisions kick in immediately, and will apply to confidentiality agreements that are entered, or updated, after the DTSA is enacted.  Employers who do not comply with the notice requirement with respect to a particular employee effectively waive their ability to claim punitive damages (up to 2x compensatory damages) or reasonable attorney’s fees against that employee in the event of a trade secret misappropriation in violation of the DTSA.

Both houses of Congress have passed the DTSA with overwhelming support, and the Obama administration is expected to sign it into law.

While the DTSA has received significant attention for creating a private right of action for trade secret misappropriation in federal courts and for its ex parte seizure provisions, the new notice requirements will likely have a much more immediate impact on daily operations.

Under the DTSA, an employer is required to inform its employees that they will not be liable for federal (or state) trade secret misappropriation if they disclose the trade secret:

  1. in confidence to a “Federal, State, or local government official” either directly or indirectly, or to an attorney, “solely for the purpose of reporting or investigating a suspected violation of law;” or
  2. in any document filed under seal in a lawsuit or other proceeding. In addition, with respect to lawsuits alleging retaliation by an employer against an employee for reporting a suspected violation of law, the employee may disclose the trade secret to his/her attorney, and use that information in the court proceeding, as long as any document containing the trade secret is filed under seal and the employee does not disclose the trade secret absent a court order.

Given its benefits, the DTSA notice provision will likely motivate significant revision of employee non-disclosure agreement forms as well as confidentiality agreements with independent contractors and consultants to bring them up to date.