Defend Trade Secrets Act Creates Need to Revise Employee Contracts Governing Use of Trade Secrets and Confidential Information
Fashion companies deal with trade secrets and other confidential information all the time. Whether it is proprietary information regarding customers, pricing, sourcing, product design or manufacturing methods, this valuable intellectual property provides a competitive edge in the market by virtue of the fact that it is not generally known. If you use employment contracts or non-disclosure agreements with your employees restricting their use of the company’s trade secrets or other confidential information (and if you don’t, you really should), then you need to be aware of a provision in the Defend Trade Secrets Act of 2016 (DTSA), which has been passed by the House and Senate and will become the law of the land once the legislation is signed by President Obama.
The DTSA has a section providing immunity from claims of trade secret misappropriation to whistleblower employees who disclose their employer’s trade secrets or confidential information to State or Federal agencies for the purpose of reporting or investigating a suspected violation of law. Significantly, that section also incorporates a requirement that an employer “shall provide notice of the immunity” created by the DTSA “in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” Failure to include this notice will strip the employer of certain remedies (such as enhanced damages and attorney fees) available in an action against an employee brought under the DTSA. This notice requirement applies to contracts or agreements entered into or modified after the DTSA becomes law.
So what does this mean for you? It means that you need to revise your existing employee contracts and NDA’s. Going forward, employment contracts or NDA’s with new employees addressing their access to, and their permitted uses of, your trade secrets and other confidential information should incorporate the new notice required by the DTSA. The same is true for any modifications to existing contracts or NDA’s with current employees. For purposes of this notice requirement, the DTSA broadly defines “employee” as including any individual “performing work as a contractor or consultant for an employer,” so any agreements used with contractors and consultants should also be revised to include the notice.
If you have any questions about this important change in the law, or need any assistance preparing DTSA-compliant notice language to incorporate in your employee contracts or NDA’s, please contact Anthony Lupo, Dana Finberg, or the Arent Fox professional who handles your matters.