Changes in Trade Secrets Law Mandate Updates to Employment Agreements

Changes in the law may make it necessary for many employers to review their employment agreements and confidentiality provisions.

Effective May 11, 2016, The Defend Trade Secrets Act of 2016 (“DTSA”) created a federal civil cause of action for trade secret misappropriation. DTSA authorizes the owner of a trade secret to bring a lawsuit in federal court for the misappropriation of its trade secret that is related to a product or service used in, or intended for use in, interstate or foreign commerce. DTSA does not preempt existing state trade secret laws from which it was largely modeled, but rather it creates a broader definition of a trade secret that will ultimately lead to new federal case law interpreting its provisions.

Trade secrets can include customer lists, computer codes, manufacturing processes, scientific formulas, and other financial, business, scientific, technical, economic or engineering information, under two conditions: (1) the owner has taken reasonable measures to keep such information secret; and (2) the information derives independent economic value from not being generally known to, and not being readily ascertainable through proper means by another person who can obtain economic value from the disclosure or use of the information.

Thus, long before an employee resigns and steals potential trade secrets, it is crucial to take reasonable preventative measures to prevent the theft in the first place (and to qualify confidential information under the definition of trade secrets). Those can include: (1) security measures — limiting access to confidential information, password protection, locked file cabinets, etc.; and (2) employment agreements — provisions relating to confidentiality, non-competition, non-solicitation, inventions and intellectual property, etc. 

DTSA requires that all agreements with employees, contractors and consultants entered into or updated on or after May 11, 2016, that govern the use of trade secrets or other confidential information, contain a whistleblower immunity notice pursuant to 18 U.S.C. § 1833(b)(3). Lacking such a notice, a lawsuit under DTSA will not be able to recover exemplary damages or attorneys’ fees resulting from trade secret misappropriation (although injunctive relief and actual damages are still available).

Even though some agreements may have been entered into before May 11, 2016 (and the notice requirement is not retroactive), now is the time to review and revise them in order to ensure they comply with ever changing state and federal statutes and court decisions governing trade secrets, employment agreements (and their confidentiality, non-competition, non-solicitation, inventions and intellectual property provisions), and to ensure that they meet the needs of your business. 

For more information, please contact Blake Roter at 312/840-7116 or broter@burkelaw.com.