Implementing the Whistleblower Immunity Notice Provision under the Recently-Enacted Federal Defend Trade Secrets Act

The Defend Trade Secrets Act, signed into law on May 11, 2016, includes a whistleblower immunity notice provision. An employer that wants to preserve maximum recoveries for misappropriation against an employee should take action now. 

The whistleblower notice provision protects only individuals who meet the definition of “employee” under the Act. The only sanction for an employer failing to give whistleblower notice is the inability to obtain exemplary damages (punitive damages) or attorneys’ fees “against an employee to whom notice was not provided.” Based on these facts, employers can choose not to give their employees, individual independent contractors, and individual consultants compliant notice of the whistleblower protections. 

Employers must decide what they value more highly: avoiding the current burden and organizational impact of providing affirmative notice of the whistleblower provision, or preserving the value of a possible future court judgment against an employee that includes punitive damages and attorneys’ fees (which may not be collectable against many employees). Providing the notice may also increase employee awareness of whistleblower protections. Fortunately the Act allows cross-reference to an updated policy document containing the notice provision, instead of requiring direct notice to each employee of the existence and content of the whistleblower protection found in the Act.

In the event that an employer does want to provide notice, the following analysis answers the “who,” “what,” “where,” “how,” “when,” and “why,” questions on implementation. 

Who should receive information about the notice?

Anyone who receives an IRS Form W-2 (the typical employee) or Form 1099 (contractor or consultant) from the company. The Act broadly defines “employee” to also include “any individual performing work as a contractor or consultant for an employer.” It does not apply to whistleblowing by business entities.

What should the notice say?

The following language is the whistleblower immunity provision notice:

Pursuant to 18 U.S.C § 1833(b)(1): “An individual shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that (A) is made (i) in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.”

This is the minimum notice required by the Act. In addition, the employer might want to include the following language with the notice: 

Any employee, contractor, or consultant who is found to have wrongfully misappropriated trade secrets may be liable for, among other things, exemplary damages and attorneys’ fees.

Although notice of liability is not a required part of the notice provision under the Act, including that paragraph might remind employees of their responsibility to protect company information, while indirectly deterring frivolous whistleblowing otherwise encouraged by the whistleblower notice provision alone.

Where should the whistleblower immunity notice be located?

The whistleblower immunity notice should be located in a policy document, such as an employee manual, or other document generally covering the use of trade secrets and confidential information. That document should be updated to include the above immunity notice. As explained below, cross-references to that policy document can then be included in individual employee agreements.

How should notice of the immunity provision be provided to “employees”?

In any “employee” contract or agreement that governs the use of a trade secret or other confidential information, refer to the company document governing the use of trade secrets or other confidential information that has been modified to include the whistleblower notice. An example of language to include in the contract or agreement is:

[Employee/Contractor/Consultant] acknowledges that it has reviewed all notices and agrees to be bound by the policies and requirements set forth in [name of company document], available at [link or physical location of company document].

The Act allows for compliance with the immunity notice provision through cross-referencing a policy document instead of having to include the entire immunity provision in each contract. The employer also can choose to include the whistleblower notice in every employee agreement, but need not do so if the agreements incorporate the policy document by reference. In most situations, exercising the option to cross-reference will provide an employer with the benefit of immunity protection while limiting publication of the specific whistleblower protections under the Act.

When should the updated notice be provided?

Notice should be given for any agreements, including new employment agreements, entered into or updated after May 11, 2016, the date of enactment of the statute. For “at will” employees who are not bound by a written contract, an employer should notify those employees that the company policy has been updated, with specific reference to how employees may access and review the policy document.

Why should notice be given?

In most cases, incorporating the notice will provide an employer with potentially valuable protections. The whistleblower notice allows an employer to preserve maximum recoveries for trade secret misappropriation against an “employee.” Failure to provide notice precludes recovery of exemplary damages or attorneys’ fees for wrongful trade secret disclosure “against an employee to whom notice was not provided.”

Sutherland previously reported on passage of the Act by overwhelming votes in both the Senate and the House, and the President’s signature of the bill into law on May 11, 2016.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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