What Employers Need to Know About the Defend Trade Secrets Act

On May 11, 2016 President Obama signed the Defend Trade Secrets Act of 2016 (DTSA) into law. The DTSA gives employers rights in addition to those given under state statutes governing trade secrets and other employment contracts such as non-competes.  The DTSA includes protections for whistleblowers who disclose trade secrets under certain circumstances. The DTSA amends 18 U.S.C. § 1833(b) to provide criminal and civil immunity under any federal or state trade secret law for the disclosure of a trade secret that either is made: (1) In confidence solely for the purpose of reporting or investigating a suspected violation of law to a federal, state, or local government official or an attorney or (2) in a complaint or other document filed under seal in a lawsuit or other proceeding.

Employers must give employees, contractors, and consultants notice of this potential immunity in any contract or agreement entered into or amended after the effective date of the DTSA that governs the use of a trade secret or other confidential information.  An employer may comply with this requirement by cross-referencing a policy document that contains the employer’s reporting policy for a suspected violation of law.  An employer that does not provide the required notice is precluded from recovering exemplary damages or attorneys’ fees under the DTSA in an action against an employee, contractor or consultant to whom notice was not provided.  Thus, employers should review and revise all agreements that contain confidentiality provisions with employees, contractors and consultants entered into on or after May 11, 2016 to include the Notice of Immunity Pursuant to the DTSA.  Failure to do so could limit the damages recoverable in the event of an improper disclosure of trade secrets.