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3 Steps for Employers to Preserve Rights and Remedies Under the Recently Enacted Defend Trade Secrets Act

By Christopher L. Johnson

On May 11, 2016, President Obama signed into law the federal Defend Trade Secrets Act (DTSA), which now provides a federal claim for misappropriation of trade secrets. Under the new law, owners of trade secrets may seek remedies, including damages, for any loss incurred by the misappropriation; court orders allowing civil seizure to recover stolen trade secrets; injunctive relief forbidding additional misappropriation; and, in certain cases, double damages and attorneys’ fees.

The DTSA also provides immunity to whistleblowers from liability for confidential disclosure of a trade secret to the government or in a court filing. To have the full range of remedies available under the DTSA, employers must give notice of the whistle blower immunity to employees in “any contract or agreement with the employee that governs the use of trade secret or other confidential information,” including existing contracts that were updated on or after May 12, 2016. Employers must also advise employees that an individual who has filed suit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret under certain conditions. Thus, employers should begin taking action now to preserve rights and remedies under the DTSA.

The terms and phrases “contract or agreement” and “trade secret or other confidential information” suggest that the notice requirement is not limited to just employment contracts or trade secrets as defined by the statute. The DTSA defines an employer’s “employees” broadly to include any individual performing work as a contractor or consultant, hence employers will need to be sure those individuals receive notice of the whistleblower immunity under the DTSA. Where the contractors or consultants performing the work are companies, employers should determine whether notice has been received by the individuals doing the work on behalf of those companies acting as contractors or consultants.

The DTSA expressly prohibits employers from recovering double damages or attorneys’ fees where they have failed to comply with the notice requirements. The DTSA does not, however, prescribe prohibition as the sole penalty – which may give rise to unintended causes of action against non-compliant employers in the future. One could also imagine efforts to introduce evidence of an employer’s non-compliance by an employee who has filed suit for retaliation, in the same manner that the employee might attack a non-existent or inadequate conventional anti-retaliation policy (i.e. “the employer was just trying to keep me in the dark so I wouldn’t know my rights”). Thus, employers should take the following steps with regard to notice of the whistleblower immunity required by the DTSA to avoid the loss of remedies and prevent other unintended consequences of failing to comply with the new law:

  1. Update employee handbooks to include notice of the DTSA’s immunity exceptions to all employees.
  2. Supply notice of the whistleblower immunity under the DTSA in any contract entered into or updated as of and after May 12, 2016.
  3. Evaluate contracts or agreements with independent contractors and consultants to ensure all individuals providing the work receive statutory notice.