Corporate employees who report potential misappropriation of trade secrets to government officials, or to attorneys, will enjoy immunity and whistleblower protection under certain provisions of the new Defend Trade Secrets Act of 2016 signed into law by President Obama earlier last week.  The Act also creates broad new Federal jurisdiction over trade secrets litigation, and creates new civil seizure remedies in cases.  Our previous reports on the new legislation are available here. 

Although the creation of a new parallel track of Federal jurisdiction for trade secrets cases is the most prominent and newsworthy change in the new legislation, the protection for individuals reporting potential acts of misappropriation is also an important change, and one that employers need to understand and implement properly.  The new Act creates protections for employees who report potential violations of law, and also creates certain new obligations for employers.  Among other things, it means that any employer who arguably comes into possession of trade secrets belonging to another party or person must be mindful that an employee who makes any claim of a violation of law will enjoy certain protections and will be able to use the confidential information at issue with immunity in making a report.

The Act, now identified as Public Law No. 114-153, creates an immunity from all civil or criminal liability for an individual who discloses trade secret information if that person makes the disclosure (1) in confidence, to a government official, or to an attorney, “solely for the purpose of reporting or investigating a suspected violation of law,” or (2) in a complaint or other document filed in court, or other legal proceeding, if the document is filed under seal.   If that person subsequently makes a claim of retaliation against an employer arising out of any such report or disclosure, the employee is entitled to disclose the substance of the trade secrets in the court proceeding, as long as he or she does so under seal and in compliance with any court order.

In addition, the Act requires employers to provide employees with notice of this immunity in any contracts or agreements that employees sign with regard to the protection, use or disclosure of trade secrets or other confidential information.  That obligation can be satisfied through a cross-reference to any company policy that has been provided to the employee concerning reports of suspected violations of law.  If the employer fails to provide the required notice, the employer will not be able to recover any exemplary damages or attorneys’ fees in any action brought under the Act for theft of trade secrets against an employee to whom such notice was not given.

For purposes of the Act, “employee” is defined broadly to include individuals who are providing contractor or consultant work for the employer.  It is not clear if that includes an individual who is affiliated with a larger consulting company or contractor that has an agreement with the employer to provide services, or if the protection of the Act would extend to that individual’s company.

These provisions of the Act suggest that all employers with existing contracts governing their employees’ obligations to maintain the secrecy of trade secrets or confidential information should revise or update those agreements to provide the required notice, or at least to cross-reference and any existing company policies on employee rights with regard to reporting violations of law.  In the event an employer learns that an employee has made a report to his or her counsel, or to government officials, the employer should proceed cautiously, and with the advice of counsel, before subjecting that person to any adverse employment action.

We are prepared to assist clients with the interpretation and implementation of this important new legislation.