Federal Defend Trade Secrets Act Necessitates Changes to Form Employment Agreements

By Lawrence H. Pockers, Co-Chair, Duane Morris Non-Compete and Trade Secrets practice

Following passage by the House of Representatives on April 27, 2016, President Obama is expected to sign the Defend Trade Secrets Act of 2016 into law any day. Once signed into law, the Defend Trade Secrets Act will amend Chapter 90, Title 18 of the United State Code (The Economic Espionage Act of 1996) to create a federal, private cause of action for trade secret misappropriation where “the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.” The Defend Trade Secrets Act will apply with respect to any misappropriation of a trade secret “for which any act [of misappropriation] occurs on or after the date of the enactment of the Act.” Much of the early commentary surrounding the Defend Trade Secrets Act has focused on the fact that employers will now be able to rely on federal law instead of navigating the sometimes subtle differences in state laws concerning claims for trade secret misappropriation, and the provisions of the Defend Trade Secrets Act which permit the civil seizure “of property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.”

One aspect of the Defend Trade Secrets Act that has received little attention, but that should be top of mind for employers, is a provision buried at the end of the Act that will necessitate a change in the form of employment agreements many employers use in order to maintain maximum leverage over employees and ex-employees who misappropriate trade secrets. More specifically, Section 7 – the very last section – of the Act, amends the Economic Espionage Act to create immunity from liability where an individual (for example, an employee or ex-employee) confidentially discloses a trade secret to a government official, an attorney or in a court filing. This Section of the Act requires that “[a]n employer shall provide notice of the immunity set forth in this subsection in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” An employer that fails to comply may not be awarded exemplary damages or attorneys’ fees in an action under the Act unless the employee was provided with this form of notice.

Employers should consult with an attorney to revise their form employment agreements to ensure they have all remedies at their disposal should an employee or ex-employee misappropriate the company’s trade secrets.

Lawrence H. Pockers
Lawrence H. Pockers (10)
2018 Non-Compete and Trade Secrets Law Preview

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