Employers Must Amend Confidentiality and Similar Agreements to Ensure Full Protection of the New Federal Trade Secrets Act

The federal Defend Trade Secrets Act (DTSA), which President Obama signed into law last week, puts a new and significant arrow in the quiver of employers seeking to enforce trade secret protections, as previously discussed in prior FaegreBD alerts — “How the Defend Trade Secrets Act Helps Businesses” and “Trade Secrets on the Brink of Federal Protection.” However, the new law guts certain remedies otherwise available to employers under the statute if employers have not provided written notice to employees of the statute’s immunity provisions. In order to avoid being placed in a situation where they cannot take full advantage of the remedies offered by the DTSA, employers should take immediate action to insert such notification provisions in all newly-entered employment, contractor and consulting agreements that contain nondisclosure provisions.

The DTSA requires employers to provide this notification in any employment agreements (including contracts with consultants or independent contractors) which: (1) address nondisclosure of trade secrets or confidential information; and (2) are entered into or updated after May 11, 2016. The notice must advise the employee, contractor or consultant that they are immune from criminal and civil liability under state and federal law if they disclose trade secrets: (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; (2) in a complaint or other document filed in a lawsuit or other proceeding when the filing is made under seal; or (3) to their attorney or in a sealed court filing in a lawsuit alleging retaliation for reporting a suspected violation of law. Alternatively, an employer may provide a cross-reference in such agreements to a company policy document provided to the employee that sets forth the employer’s reporting policy for a suspected violation of law.

Employers who enter into nondisclosure agreements with an employee, contractor or consultant after May 11, 2016, and do not provide the requisite notice (or policy reference) will not be able to recover exemplary damages (up to two times the damages outlined in the statute) or attorneys’ fees if they later bring a lawsuit against that employee, contractor or consultant for violations of the DTSA. To avoid this outcome, we recommend that employers modify all employment and consulting agreements going forward by adding appropriate notification language.