Employment Law Alert: New Federal Trade Secrets Law Requires Employers to Update Confidentiality Agreement Forms

On May 12, 2016, President Obama signed into law the Defend Trade Secrets Act of 2016. This new law creates a federal cause of action for trade secret misappropriation with potential remedies including injunctive relief, monetary damages, exemplary damages for willful/malicious misappropriation of up to two times the monetary damages, and prevailing party attorneys’ fees in certain situations. Under specified circumstances, the law also authorizes a court to order seizure of misappropriated property.

The law further provides that individuals are immune from civil or criminal liability for disclosing trade secrets for the purpose of reporting or investigating a suspected violation of law, or for disclosing trade secrets in a legal proceeding if the information is filed under seal. Importantly, employers are required to notify employees of this immunity “in any contract or agreement . . . that governs the use of a trade secret or other confidential information.” This requirement applies to contracts and agreements that are entered into or updated on or after May 12, 2016 (e.g., new hires or existing employees signing agreements on or after May 12). If an employer fails to comply, it will not be allowed to recover exemplary damages and attorneys’ fees under the new law. Employers should work with legal counsel immediately to update their employee confidentiality agreements to ensure that new hires and other employees are signing compliant forms.

We have long recommended that employers take proactive steps to ensure that new hires and other employees do not misappropriate trade secret information of a prior employer. This includes, but is not limited to, compliance training for managers, requiring written assurances of compliance from new hires, and taking further special measures to ensure compliance when hiring an employee previously employed by a competitor. The new federal law provides further impetus for employers to ensure that employees are not misappropriating trade secrets of any other company.

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