The Defend Trade Secrets Act (DFTA) was signed into law (and became effective) on May 11, 2016. The act takes effect immediately for all employers and applies to any act that occurs on or after the date of enactment. The DFTA generally provides immunity for an employee’s action that would have otherwise constituted trade secret misappropriation. Additionally, the act requires all employers to provide a notice of immunity to an employee in any contract or agreement with the employee that governs the use of a trade secret or other confidential information.
The act defines an employee to include any individual performing work as a contractor or consultant for an employer. Therefore, contractors and consultants are also entitled to the immunity and must receive the required notice of immunity.
According to the act, an individual will 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 in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, and is made solely for the purpose of reporting or investigating a suspected violation of law; or
- Is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. (Filing under seal allows confidential information, like a trade secret, to be filed with the court without becoming a matter of public record and the court must give permission for the material to remain under seal.)
The act further provides that an individual who files a lawsuit for employer retaliation for his or her 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 will be found in compliance with the new notice requirement if they provide a cross-reference to a policy document provided to the employee that sets forth the employer’s reporting policy for a suspected violation of law. Employers that fail to comply with the notice requirements may not collect exemplary damages or attorneys’ fees if the employer later sues an employee for trade secret misappropriation under the DTSA.