The Defend Trade Secrets Act of 2016: Is Your Organization Complying with the Notice Requirement?

The Defend Trade Secrets Act (“DTSA”) of 2016 that became effective May 11, 2016 creates a federal private cause of action for trade secret misappropriation and provides remedies including injunction, damages, exemplary damages up to two times the amount of damages for willful and malicious appropriation, and reasonable attorney’s fees for the prevailing party under certain circumstances. But it also provides immunity to employees who disclose trade secrets under limited circumstances and requires that you, the Employer, provide notice of these immunity provisions to your employees if you want to take full advantage of the remedies provided to you by the DTSA.

Employee Immunity Provisions under the DTSA

The DTSA provides employees, defined to include individuals working as contractors or consultants, with immunity from civil and criminal liability for confidential disclosure of an employer’s trade secrets made either:

  • In confidence and solely to report or investigate a suspected violation of the law to a government official or an attorney; or
  • In a complaint or other document filed under seal in a lawsuit or other proceeding.

The DTSA also allows an individual to disclose the employer’s trade secrets in an anti-retaliation lawsuit against the employer if the employee:

  • Files any document containing the trade secret under seal; and
  • Does not disclose the trade secret, except pursuant to court order.

Employer Notice Requirement

Employers are required to provide notice of these immunity provisions to employees in any contract or agreement entered into or modified after May 11, 2016 that governs the use or disclosure of a trade secret or other confidential information including:

  • Offer letters
  • Employment agreements
  • Independent contractor agreements
  • Consulting agreements
  • Separation and release of claims agreements
  • Severance agreements
  • Non-compete and non-solicitation agreements
  • Confidentiality and proprietary rights agreements
  • Computer use agreements and bring your own device policies

Failure to provide notice to employees can be costly to an employer.  Without the appropriate disclosures, the DTSA prohibits the employer from recovering exemplary damages, which may be up to two times the amount of actual damages, and attorney’s fees.

What must your notice include? While the DTSA does not state how detailed the notice must be or what it must say, to be on the safe side, an employer’s notice should copy the DTSA’s immunity provisions verbatim. However, these may be too lengthy to include in every communication or agreement. Therefore, the DTSA allows employers to provide a cross-reference to a policy document that includes the immunity provisions. Such a document should be acknowledged in writing by the employee and should contain the following:

  • Recitation of the DTSA’s immunity provisions in their entirety;
  • Instructions on how and to whom the employee should report possible violations of law; and
  • Assurance that the employee will not be retaliated against for reporting suspected violations in good faith.

Review and Update Your Documents

While employers will not be penalized if existing documents do not contain the notice provision, any agreements that were entered into or modified after May 11, 2016 must contain this notice provision if the employer ever wants to pursue exemplary damages and attorney’s fees under the DTSA. We advise you to perform an inventory of your agreements with employees, contractors, and consultants and any documents governing trade secrets and confidential information to ensure they contain the necessary language. Please contact us with any questions. We will be happy to help you update your agreements and/or draft a policy document that includes the appropriate language so that your company can take full advantage of the remedies offered under the DTSA.

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Author: Todd Stanton

Todd is the founder of Stanton Law, LLC in Atlanta, GA, where he is focused on helping companies avert employment-related issues without sacrificing managerial efficiency. “I take great pride in being able to provide counsel to employers and help them achieve practical solutions to what are often very personal, and potentially expensive, problems. I feel very lucky to be where I am right now, doing work I believe in. I really have a pretty good gig.” View all posts by Todd Stanton →

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