Now is always a good time to review employment policies and agreements as the year comes to an end. Many states, counties and cities have passed paid time off (PTO) laws or pregnancy accommodation laws that require policy review by employers. Additionally, the federal Defend Trade Secrets Act (DTSA), effective May 11 2016, requires that employers review their employment agreements for compliance with the Act in order to receive the full benefits of the Act.
If your company frequently uses independent contractors, outside consultants, or aggressively enforces non-compete agreements and the like, you need to incorporate the DTSA in your employment agreements.
The DTSA creates the first private cause of action for civil trade secret misappropriation under federal law. The Act expands trade secret protection for employers that previously could only enforce their trade secret rights through state law claims. However, the Act imposes certain requirements on employers to take full advantage of its provisions. It’s estimated that nearly 75 suits have been filed under the DTSA in its 7 month existence.
The DTSA allows employers to protect their trade secrets by seeking redress in federal court, bringing their rights into line with those of owners of other intellectual property such as copyrights, patents and trademarks. The DTSA incorporates many of the provisions of the Uniform Trade Secrets Act (UTSA), adopted in some form in 48 states. For example, the DTSA has a similar definition of “trade secret” and “misappropriation”; similar available remedies such as injunctive relief, actual damages, exemplary damages; and attorney’s fees; and, the same three year statute of limitations.
The DTSA goes further than the UTSA by granting litigants access to federal court; authorizing ex parte seizures where injunctive relief would be inadequate; granting immunity from civil and criminal liability to whistleblowers who disclose trade secrets to government authorities in certain circumstances; and, mandating that employers provide notice about the whistleblower immunity in any new or updated employment agreement that governs the use of a trade secret or other confidential information.
It is this last requirement that is the topic of this article. If you are requiring employees, contractors and/or consultants to sign new or updated employment agreements after May 11, 2016, then the above requirement applies to you if you want to enjoy the full protection of the DTSA. An employer that fails to provide the required immunity notice is precluded from recovering exemplary damages (up to 2x the amount of the compensatory damages for willful and malicious misappropriation) as well as attorney’s fees. (These remedies are likely still available to an employer asserting a state law claim under their state’s version of the UTSA).
Employers should consider adding language similar to the following in their employment agreements, independent contractor agreements, consulting agreements, separation and release of claims agreements, severance agreements, non-compete and non-solicitation agreements, and confidentiality and proprietary rights agreements where there is an obligation on the employee to preserve the confidential nature of the trade secret or proprietary information:
You are hereby given notice that in accordance with the Defend Trade Secrets Act of 2016 that you will 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 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, (b) is made in a complaint or other document that is filed under seal in a lawsuit of(should this be “or”) other proceeding.
You are further notified that if you file a lawsuit for retaliation by an employer for reporting a suspected violation of law, you may disclose the employer’s trade secrets to your attorney and use the trade secret information in the court proceeding if you (a) fie any document containing the trade secret under seal; and, (b) do not disclose the trade secret, except pursuant to court order.
The immunity notice language applies to “trade secrets” but not necessarily to all confidential information covered by a broader agreement.
Employers should also revise their forum selection clauses that reference particular state courts to now include the local federal district court as well. Of course, employers may wish to include claims for violation of the Computer Fraud and Abuse Act (CFAA) when employees exceed their authorized access to their employer’s computer system, such as when they misappropriate trade secrets from it. The CFAA claim should be brought in addition to claims brought under the DTSA rather than in lieu of them.
Now is the time to review and revise your agreements to take full advantage of the protections provided by the DTSA. Clearly, the DTSA has become a viable weapon for employers as evidenced by the number of suits filed since its adoption.
If you have any questions about this or any other employment-related issue, please contact Joseph F. Spitzzeri at 312-984-0683.