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Whistleblower Protections under Federal Defend Trade Secrets Act

Published:  August 18, 2016

Do you have your employees sign a non-disclosure or confidentiality agreement? 

If the answer is yes, you may want to update your confidentiality agreement, employment contracts, or other policies related to non-disclosure of trade secrets due to the passage of the Defend Trade Secrets Act (DTSA).  The DTSA amended the Economic Espionage Act (EEA), and provides a private right of civil action for trade secret misappropriation (the EEA was previously a criminal law enforcement statute).  In a nutshell, the Act protects employees who report potential violations of law and creates new notice obligations for employers.

The DTSA protects whistleblowers from criminal and civil liability, and has an anti-retaliation provision.  Under the Act, an individual will not face criminal or civil liability under any federal or state trade secret law for disclosing a trade secret if such disclosure is made in confidence to a government official or to an attorney, and solely for the purpose of reporting or investigating a suspected violation of law; or if such disclosure is made in a complaint or other document filed in a lawsuit, if such filing is made under seal.  An employee who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to his or her attorney, and use the trade secret information in the court proceeding, if the individual files any document containing the trade secret under seal, and does not disclose the trade secret, except pursuant to court order. 

Employers have an obligation to give employees notice of the whistleblower protection.  However, the only consequence for failing to provide such notice is related to what an employer may recover in any action brought under the Act against an employee for misappropriation of trade secrets.  Under the Act, an employer may recover attorneys’ fees and, in some instances, punitive damages, if they prevail.  The catch is that in order to preserve this right to recover attorneys’ fees and punitive damages, employers must provide employees with such notice.  Employers can satisfy the notice requirement by (1) incorporating whistleblower immunity language into a confidentiality agreement or any contract or agreement that employees sign with regard to the protection, use, or disclosure of trade secrets or other confidential information; or (2) cross-referencing a policy, which includes whistleblower immunity language.  Cross-referencing to another policy may be preferable for some employers because of administrative ease and because it does not highlight the whistleblower protection. 

Notice should be given for any agreements entered into after May 11, 2016.

Also noteworthy, the DTSA broadly defines “employee” to include independent contractors and consultants. 

If you have any questions regarding the DTSA or non-disclosure and confidentiality agreements generally, please contact any of the attorneys at Royal, P.C. at (413) 586-2288.