President Obama has signed into law the federal Defend Trade Secrets Act (DTSA), which now can be used to pursue the misappropriation of a trade secret that occurs on or after May 11, 2016.

Employers typically impose confidentiality restrictions to protect trade secrets and confidential information, including when conducting internal investigations and in employee separation agreements.The law requires notice to be added to new and revised nondisclosure agreements about a whistle-blower’s right to disclose trade secret information to federal enforcement authorities.

HR will remain the front-line of defense for the protection of trade secrets;

whether through confidentiality clauses or agreements, employee training or exit interviews, HR plays a critical role as it:

  • Educates employees about what constitutes a trade secret and how trade secrets are protected.
  • Reminds departing employees of their continuing duties to protect trade secrets.
  • Have vigilant eyes and ears open for any signs of trade secret theft.

Under the DTSA, an employer that fails to provide the required notice cannot recover against an employee or contractor that did not receive this notice: (1) the exemplary damages available under the DTSA (which can double the damages awarded) or (2) any of its own attorneys’ fees or costs (which can be awarded when the trade secrets are willfully and maliciously misappropriated). The DTSA is silent as to whether there are any other consequences for an employer that fails to provide the required notice.

At a minimum, employers are strongly advised to include the required notice in any nondisclosure agreements with employees or independent contractors going forward. Employers also may want to look for opportunities to update their existing employment and contractor agreements to include this notice language. Sample notice language to be included in nondisclosure provisions, which would need to be adapted for use in specific agreements, could be as follows:

Notwithstanding the foregoing nondisclosure obligations, pursuant to 18 USC Section 1833(b), [Employee/Contractor] shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that is made: (1) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, and solely for the purpose of reporting or investigating a suspected violation of law; or (2) in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.”