Employers: change your non-disclosure agreements

 

   If you are an employer and your employees sign non-disclosure agreements, or confidentiality agreements, then it is time to update those agreements.

   On May 11, 2016, the Federal Defend Trade Secrets Act (DTSA) went into effect. The DTSA provides for Federal jurisdiction for lawsuits for theft or misuse of trade secrets. Through the DTSA, owners of trade secrets now have the option of suing in Federal court. The DTSA is based on the Uniform Trade Secrets Act and is designed to make trade secret law more uniform in its application. Most states, including California, have adopted a version of the Uniform Trade Secrets Act.

    The new Federal law does not preempt state laws but allows the alternatives of filing in either state or Federal court. There are some differences between the DTSA and California’s trade secret law, so attorneys will be comparing the two in determining where to file.

   One significant part of the bill requires employers to notify employees in non-disclosure agreements that employees are immune under whistleblower laws. The DTSA provides immunity for disclosure of trade secrets to government officials for the sole purpose of reporting violations of the law. Employers are required to give notice to employees of this immunity when employees sign non-disclosure agreements (or confidentiality agreements, or other documents that have terms regarding trade secrets or confidentiality agreements).

   If employers do not give such notice, they lose the right to obtain punitive damages and attorney’s fees in actions brought under the DTSA. The loss of the right to collect attorney’s fees is particularly problematic. Often the ability to obtain attorney’s fees is a deciding factor in determining whether or not to file suit.

   Employers are urged to review and change their non-disclosure/confidentiality agreements to comply with the DTSA.

Eric D. Morton is the principal of Clear Sky Law Group and specializes in business and intellectual property law. He is also an adjunct professor at California Western School of Law.  He can be reached at 760-722-6582 or emorton@clearskylaw.com.