Time to Modify Your Confidentiality Agreement: New Federal Statute Affords Enhanced Protections to Employers Concerned about Employee Misappropriation of Trade Secrets

Employers wishing to protect their trade secrets should consider immediately revising their confidentiality agreements to take advantage of the provisions of the Defend Trade Secrets Act of 2016 (DTSA), which was signed by President Obama on May 11, 2016, and went into effect immediately. DTSA provides employers with additional, enhanced remedies when employees misappropriate their “trade secrets.” The good news for employers is that DTSA defines “trade secret” broadly to include, among many other things, financial data, business plans, formulas, designs, and methods an employer may have developed pertaining to a product or service.

Prior to the enactment of DTSA, trade secret misappropriation was a matter of state law, and remedies for violations were limited to those available under common law, usually monetary damages. DTSA does not eliminate or preempt state law remedies available to an employer. Instead, it adds additional means by which employers can protect their trade secrets, including the employer’s right to file a lawsuit in federal court when its trade secrets have been misappropriated, such as when taken by a departing employee.  In addition, an employer may be entitled to government seizure of materials containing misappropriated trade secrets, without prior notice to the violating party.  DTSA also affords an employer the ability to seek injunctive relief and monetary damages when the employer is trying to prevent disclosure of trade secrets to competitors.

The DTSA also provides remedies to employers that were not available prior to its enactment. For example, an employer may be entitled to government seizure of materials containing misappropriated trade secrets, without prior notice to the violating party. DTSA also affords an employer the ability to seek injunctive relief and monetary damages when the employer is trying to prevent disclosure of trade secrets to competitors. The law also allows for exemplary (double) damages and recovery of attorney’s fees if a trade secret is willfully misappropriated.

So what must an employer do to take advantage of DTSA’s provisions, including the possibility of recovering double damages and attorney’s fees? To avail themselves of all of the protections of DTSA, employers must advise “employees” (who are defined broadly to include independent contractors and consultants) who have already signed confidentiality or trade secret agreements that they are immune from civil or criminal liability if they disclose a trade secret in confidence to a government official, directly or indirectly, or to an attorney for the purpose of reporting a violation of the law. The steps employers should take to comply with the notification will depend on whether or not they already have a whistleblower policy. Those who do, need to only issue an addendum to any existing confidentiality/trade secret agreements that informs employees who are subject to those agreements that the whistleblower policy also applies to any trade secrets that might be disclosed directly or indirectly to a government official or an attorney for the purpose of reporting a violation of the law. Employers who do not have a whistleblower policy can either develop one for cross-reference purposes and then give notice of the protection to the employee or provide the immunity language from the statute to the covered employees in the form of an addendum to the existing confidentiality or trade secret agreements. In either case, express reference to the DTSA is recommended. Employers who do not have agreements in place to protect trade secrets should consider implementing them.

Going forward, employers wanting to take full advantage of the DTSA should make sure that any confidentiality/trade secret agreements are compliant with the provisions of the DTSA. This may also be a good time to be sure that such agreements have clear definitions of trade secrets and confidential information, are not overly broad, and that the trade secrets deserving of protection are truly kept secret. If you would like assistance reviewing and revising your confidentiality agreements or putting one in place, please reach out to any of the attorneys at Skoler, Abbott & Presser, P.C.