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Complying With the Employer Notice Requirement of The Defend Trade Secrets Act of 2016

The Defend Trade Secrets Act of 2016 (DTSA) expanded trade secret protections, but also created new requirements for employers to take advantage of those protections, including providing notice of the new whistleblower immunity "in any contract or agreement with an employee that governs the use of a trade secret or other confidential information" for contracts "entered into or updated after the date of enactment of the statute." Employers need to be aware of the breadth of scope of these notice requirements to ensure they receive the full benefit of the protections.

A. Civil and Criminal Immunity for Individuals Who Report a Violation

The immunity and anti-retaliation provisions are intended to protect individuals who may need to disclose trade secrets. Specifically, the DTSA provides civil and criminal immunity to individuals under any federal or state trade secret law for the disclosure of a trade secret that is made (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney for the sole purpose of reporting or investigating a suspected violation of law, or (ii) in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.

B. Employer Notification Requirements

The term "employee" is broadly defined under the DTSA as "any individual performing work as a contractor or consultant for an employer." The DTSA requires employers to provide notice of the immunity and retaliation provisions to employees, consultants, and independent contractors in any contract or agreement entered into after May 11, 2016, that governs the use of trade secrets or other confidential information. Accordingly, trade secret owners should consider updating agreements with not only employees but also independent contractors and vendors who may have access to confidential information and trade secrets. Examples of agreements require the notice provisions to the extent they govern trade secrets and confidential information include:

• Employment agreements

• Independent contractor agreements

• Consulting agreements

• Separation and/or release agreements

• Severance agreements

• Non-compete and non-solicitation agreements or other similar restrictive covenant agreements

• Confidentiality and proprietary rights agreements

• Similar agreements included in employee handbooks

The notice can either be directly incorporated into these agreements or by cross-referencing the company's reporting policy. The vast majority of small-to-medium sized businesses do not have a separate reporting policy and will have to rely on direct incorporation. Examples of both types of notices are set forth below.

C. Consequences of Failure to Provide Notice

The DTSA currently does not include a statutory penalty for not providing the required notice. If an employer fails to provide the required Notice, the employer is, however, prevented from recovering punitive damages or attorneys' fees under the DTSA from an employee to whom the required notice was not provided.

D. Drafting the Notice

Employers should use a standardized notice clause to use in all newly drafted agreements to which the notice requirement applies. The DTSA does not provide an example notification clause, and it is not clear whether simply citing to the immunity provisions is sufficient or whether the immunity provisions must be reprinted in the agreement in their entirety. It is also not clear whether the protections regarding anti-retaliatory lawsuits need to be included in the notice. Because of this uncertainty, employers should include the entirety of the immunity provisions and the anti-retaliatory lawsuit protections. Including both will ensure that any challenge by an employee claiming they did not receive adequate notice will fail, and employers will be able to avail themselves of all of the DTSA remedies. Although the notice requirement does not affect existing agreements, if an existing agreement is amended, then the notification clause needs to be included in the amended version (using the same standardized notification clause as used for new agreements). Additionally, while the notification requirement does not affect existing agreements, employers may consider updating all existing agreements to include the notification provisions just to ensure that the employer will be able to exercise all remedies available to it under the DTSA.

Alternatively, employers can comply with the DTSA notification requirement by cross-referencing to a company policy for reporting suspected violations of law. Because the DTSA does not specify the form of notice to be used in a cross-referenced policy document, again employers should be sure to include both the immunity and anti-retaliatory lawsuit provisions together with the procedure for how employees should report suspected violations of law.

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