Do Your Nondisclosure Agreements for Employees and Contractors Satisfy the New Notice Requirements?

May 19, 2016Alerts Intellectual Property Alert

Have you updated your company’s form employee and independent contractor nondisclosure agreements lately? Do they comply with the notice requirements relating to “whistleblowers” that took effect May 11, 2016 under a new federal law?

If your answer is “no” or “I don’t know,” read on.

The Defend Trade Secrets Act was designed to help U.S. businesses protect their trade secrets by enabling federal courts to order seizure of property necessary to prevent dissemination of the trade secrets. The DTSA applies to any company that owns trade secrets and wants to protect those trade secrets from theft, breach of a duty to maintain secrecy or espionage. It also permits businesses to seek injunctions and damages in federal court for trade secret misappropriation.

The law also includes two immunity provisions for whistleblowers:

“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.”

and

“An individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual (A) files any document containing the trade secret under seal; and (B) does not disclose the trade secret, except pursuant to court order.”

These immunity provisions of the DTSA are especially important for employers because the law mandates that notice of the immunity clauses be included “in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” The Act defines “employee” to include both actual employees and independent contractors. If an employer does not comply with the notice requirement, the employer’s ability to recover damages against that employee in a federal action for misappropriation of trade secrets will be limited.

Employers can comply with the notice requirement by updating their forms for employee and independent contractor agreements to include either the notice requirement or a cross-reference to a policy document (such as an employee handbook) that states the employer’s reporting policy for a suspected violation of law.

For assistance in reviewing or updating your company’s form nondisclosure agreements, please contact your attorney at Fox Rothschild or anyone in the firm’s Intellectual Property, Labor & Employment or Corporate Departments.