Whistleblower Immunity Provision

With the New Year rapidly approaching, it is the time of year when businesses review the past year’s successes and failures, as well as plan what they want to accomplish in 2017. It also should be a time when businesses review their legal contracts to make sure that they are current with all applicable laws and regulations. In particular, businesses may want to amend some of their contracts following President Obama’s signing of the Defend Trade Secrets Act (DTSA) this past May. The DTSA has amended the Economic Espionage Act of 1996 to provide a federal remedy and federal court jurisdiction for trade secret misappropriation. The DTSA includes three novel provisions that depart from those set out in the Uniform Trade Secrets Act, formerly adopted by the majority of the states. The first of these provisions permits courts to order ex parte seizures of materials containing misappropriated trade secrets. In addition to seizures, under the new law, courts may grant injunctions, award monetary damages as well as exemplary damages (up to double damages), and require the losing party to pay the prevailing party’s attorney’s fees.

The DTSA also affords whistleblowers immunity from civil and criminal liability for disclosing trade secrets for the purposes of reporting suspected violations of law. Specifically, the DTSA immunizes an individual from state or federal liability if the individual disclosed trade secrets either (1) in confidence to a local, state, or federal government official, directly or through an attorney, for the sole purpose of reporting or investigating a suspected violation of law; or (2) in a complaint or other document filed in a lawsuit, if such filing is made under seal.

Lastly, DTSA incentivizes employers to inform their workers of their whistleblowing rights by making the awarding of certain damages in litigation dependent upon workers’ receipt of such notice. In order for employers to obtain exemplary damages or attorney fees in trade secret litigation, employers will need to notify employees, consultants, and independent contractors of their whistleblowing immunity in any contract or agreement that “governs the use of trade secrets or confidential information.” 18 U.S.C. §1833(B)(3)-(4). Agreements covering the protection and non-disclosure of confidential information or intellectual property should include the whistleblowing immunity provision. A few examples of agreements that generally cover such protective provisions include:

Employer Agreements
Independent Contractor Agreements
Invention Assignment
Consulting Agreements
Advisory Board Agreements
Confidentiality Agreements
Non-Compete and Solicitation Agreements
Severance Agreements or Separation and Release of Claims Agreements

An employer may comply with the notice requirements by either incorporating the immunity provisions within each agreement that “governs the use of trade secrets or confidential information” or by including a cross-reference to the employer’s whistle-blower policy that contains the requisite immunity language. Whatever method you choose, make sure that the worker signs off or otherwise formally acknowledges that he or she actually received the notice. While the sufficiency of notice has not been formally addressed in court, we recommend that clients comply with the DTSA whistleblower notice provision by adopting the following immunity language in either its agreements or employee handbook, or both:

Notwithstanding any other provision of this Agreement, note that you will not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that is made (a) (i) in confidence to a Federal, State, or local government official or to an attorney and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (b) in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.  If you are involved in a lawsuit relating to your report of a suspected violation of law, you may disclose a Company trade secret your attorney and use the trade secret information in that court proceeding, provided, however, that you file any document containing the trade secret under seal and you do not disclose the trade secret, except pursuant to court order.

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