Recently-Enacted Defend Trade Secrets Act Requires Employer Disclosure of Whistleblower Immunity

Category: Qui Tam, Whistleblower & False Claims

New remedies for trade secret holders have stolen the headlines about the Defend Trade Secrets Act, which was signed into law by President Obama on May 11, 2016. However, the new law also provides substantial whistleblower protection for employees of companies that deal with trade secrets. The whistleblower provisions of the Defend Trade Secrets Act also provide powerful incentives for employers to notify employees of these new protections.

The primary purpose of the Defend Trade Secrets Act is to implement uniform trade secret laws across all 50 states at the federal level. A trade secret is any valuable business information that is not known to the public and that its holder takes reasonable steps to protect. Prior to the enactment of the act, trade secret laws were only enacted at the state level and there were significant inconsistencies between the states. The act provides a uniform law for trade secret holders and lessens the need to be familiar with the differing laws of each state where they do business. The act also creates legal mechanisms for seizing trade secret assets and allowing for injunctive relief, and allowing for the recovery of money damages and attorney fee reimbursement.

To counterbalance the new remedies granted to trade secret holders, the Defend Trade Secrets Act provides a safe harbor for employees who disclose trade secrets to report a violation of law under certain circumstances. Under the act, individuals who confidentially disclose a trade secret to a federal, state, or local government, or to an attorney solely for the purpose of reporting or investigating a suspected violation of the law are granted immunity from trade secret-law suits brought under state or federal law. The act also protects individuals who use trade-secret information in anti-retaliation suits that are filed under seal. This limited immunity prevents employers from suing whistleblowers who need to disclose trade secrets to report violations of the law, and employees who bring wrongful termination suits where trade-secret information is relevant.

The Defend Trade Secrets Act requires that employers put their employees on notice of the immunity provided in the act by providing written notice in any contract or agreement governing the use of trade secrets or other confidential information. An employer who fails to provide notice and brings a trade secret lawsuit cannot seek attorney fee reimbursement and certain other damages allowed under the act from an employee who was not provided notice.

The Defend Trade Secrets Act provides benefits for both employers and employees. While the act is a boon to employers who need to enforce trade secrets, it also comes with risks for those who are not aware of its notice provisions. It is critical that employers that seek the benefits of the act have employment agreements and documents that contain the requisite notice language. As a matter of public policy, this notice is essential so employees are aware of their rights to report potentially-wrongful conduct of their employers.

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