Hunton Employment & Labor Perspectives

As we previously reported, the newly-enacted Defend Trade Secrets Act (DTSA) represents a significant new weapon for companies to prosecute trade secret violations. Among other features, the DTSA’s nationwide reach and its provision for judicial seizure, double damages, and attorneys’ fees provide a much more robust enforcement and remedy scheme than is currently available under many state laws.

In order for employers to take full advantage of all that the DTSA has to offer, employers who have trade secret or confidentiality restrictions in their agreements with employees and independent contractors must comply with the “immunity notice” requirement of the DTSA. Section 7(b)(1) and (2) of the DTSA provides immunity to individuals for trade secret violations if the disclosure of the trade secret is necessary in order to fully report unlawful activity to a government agency or attorney and/or for the individual to prosecute a lawsuit against an employer. Such carveouts are relatively common under state trade secret laws, so there is nothing unusual about the DTSA’s immunity provision.

However, in Section 7(b)(3), the DTSA requires that any agreement with an employee or independent contractor containing trade secret or confidentiality restrictions also include an immunity notice so that the individual is affirmatively notified that the trade secret and/or confidentiality restrictions in the agreement do not prevent them from disclosing trade secrets where necessary to report illegal conduct or to prosecute a legal action against the employer. The immunity notice requirement can be satisfied in one of two ways: (1) the agreement can recite the immunity provisions in Section 7(b)(1) and (2) verbatim or (2) the agreement can cross-reference a policy document containing the immunity provisions. If the company opts for the latter option, it must ensure that the employee or independent contractor receives a copy of the policy.

The consequence for failing to include the immunity notice is that attorneys’ fees and double damages will not be available to the company in the event of a successful trade secrets lawsuit against the employee or independent contractor. The company will still be able to recover its compensatory damages notwithstanding the absence of the immunity notice. Moreover, though as drafted, the DTSA does not specify that failure to include the immunity notice is, in and of itself, a violation of the DTSA, it remains to be seen whether enterprising plaintiffs’ lawyers or the FTC will pursue companies who fail to include the immunity notice and, if so, whether such pursuits will be successful.

For all of these reasons, companies must ensure that, on a going forward basis, all employment agreements and agreements with independent contractors containing trade secret or confidentiality requirements also contain the immunity notice.