WHY ALL POST-MAY 2016 EMPLOYMENT AGREEMENTS MUST INCLUDE A DTSA IMMUNITY CLAUSE

In May 11, 2016, the Defend Trade Secret Act (“DTSA”) became effective, giving employers the right to bring a trade secrets misappropriation claim in federal court. Prior to DTSA, employers were limited to state courts unless they could establish diversity between the parties or had another federal claim.

While DTSA allows any employer to bring a trade secrets misappropriation claim in federal court, only those employers who have provided a DTSA notice of immunity in employment and independent contractor agreements entered into or renewed after May 11, 2016 can recover their attorney’s fees or exemplary (i.e. punitive) damages. Put differently, if an employment agreement entered after May 11, 2016, does not contain an immunity notice, an employer can sue an employee for trade secrets misappropriation in federal court, but will not be able to recover its attorneys fees or obtain an award of punitive damages.

The immunity notice requirement applies to all employees, contractors, and consultants.

The immunity notice must tell an employee or a contractor that he or she will not be held criminally or civilly liable for disclosure of trade secrets (1) made in confidence to Federal, State or local government official or to an attorney solely for the purpose of reporting or investigating a suspected violation of the law; or (2) made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.

Additionally, the notice should tell an employee that if he or she files a lawsuit for retaliation by an employer for reporting a suspected violation of law, he or she may disclose the trade secret to their attorney and use the trade secret information in the court proceeding, if the employee files any document containing the trade secret under seal and does not disclose the trade secret, except pursuant to a court order.

Employers can comply with the immunity notice requirements by cross-referencing a policy that contains the notice language.

Employers who fail to comply with the notice, but still wish to pursue a misappropriation claim, may still want to pursue a federal claim in certain circumstances, as a federal venue may provide certain advantage over state courts in those jurisdictions where an employer may face local bias. Moreover, the case law interpreting DTSA since 2016 has diverged quite significantly on some key issues from the case law interpreting its state equivalent – Texas Uniform Trade Secrets Act – which makes picking federal v. state venue a very important decision at the outset of any lawsuit involving a trade secrets misappropriation claim.

Leiza Dolghih is a labor and employment board certified partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice. Her practice includes commercial, intellectual property and employment litigation. You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108.

Leave a Reply