On Wednesday, President Obama signed into law the Defend Trade Secrets Act of 2016 (DTSA). The DTSA sets a single national standard for trade secret protection and gives the option of bringing trade secret cases in federal court and provides for remedies (such as seizure and recovery of stolen trade secrets). The DTSA also creates whistleblower protections for employees who disclose trade secrets to an attorney or governmental official for the purpose of reporting or investigating a suspected violation of law. But most urgently for employers, the DTSA contains a new notice requirement that employers need to take action quickly to satisfy.
Effective immediately, any new or updated agreements with employees, consultants or independent contractors that govern trade secrets or confidential information need to include a “notice-of-immunity.” The notice may be provided via reference to a general policy document rather than restating the entire immunity provisions in each agreement. An employer that fails to provide this notice will forfeit their right to exemplary double damages and attorneys’ fees in an action brought under the DTSA.
Employers wishing to take advantage of the DTSA’s protections need to revise their standard agreements and ensure that any agreement provided on or after May 11, 2016 includes the required notice-of-immunity. We recommend that you consult with legal counsel to ensure compliance with this new requirement.
On September 10th, the 2nd Circuit Court of Appeals (New York, Connecticut and Vermont) handed down its decision in Berman v. Neo@Ogilvy, holding that an internal report of what an employee deems to be a securities law violation can protect him from retaliation under the Dodd-Frank Act.
The Act defines “whistleblower” as “any individual who provides … information relating to a violation of the securities laws to the Commission, in a manner established by rule or regulation, by the Commission.” (Emphasis added.) And retaliation against “whistleblowers” is prohibited by the Act. However, the Act also prohibits retaliation against those making disclosures that are protected by the Sarbanes-Oxley Act, which provides protection for internal reports. The Securities and Exchange Commission (SEC) has taken the position (in its regulations and interpretive rules) that although “whistleblower” is defined in the Act as an individual who provides information to the Commission, this other provision of the anti-retaliation section protects individuals who make an internal report to their employer.
In 2013, the 5th Circuit (Texas, Louisiana and Mississippi) rejected the SEC’s position, and ruled that the plain language of the Act requires a covered “whistleblower” – an individual who provides information relating to a violation of the securities laws to the Commission. Thus, under the 5th Circuit’s holding an employee can’t base a retaliation claim on an internal report.
In this case, the 2nd Circuit disagreed with the 5th Circuit, giving deference to the SEC’s interpretation of the Act. According to the 2nd Circuit, employees do not need to report the alleged violations of securities laws to the SEC to be protected from retaliation under the Act.
Given the circuit split, it is quite possible that the issue will find itself before the Supreme Court. Until then, and regardless of what state(s) you operate in, we recommend that you carefully consider any employment action that follows an internal or external complaint of any kind to determine whether the complaint may be considered “protected activity” and whether taking the employment action opens you to a retaliation claim.