Do You Use Confidentiality Agreements? Make Sure They Reflect the New Federal Notice Requirement!

It is very normal for aerospace distributors to ask their employees to sign non-disclosure agreements in order to protect the business’ confidences.  This protects a wide range of trade secrets, including customer lists and financial data.

Congress passed a new trade secret law, which provides a federal cause of action for trade secret infringement. The new law, known as the Defend Trade Secrets Act of 2016 (DTSA), is identified as Public Law 114-153 and was signed into law on May 11, 2016 (yesterday).

Provisions of the new law will impose some affirmative burdens on employers, and if you fail to meet those obligations then you could undermine your company’s intellectual property rights.  In short, the new law provides new whistle-blower protection but it also imposes on employers an affirmative obligation to provide notice about the new whistle-blower protection.  Failure to provide notice when it is required could undermine your ability to collect in a trade secret infringement case.

WHISTLE BLOWER PROTECTION

The DTSA provides whistle blower protection to certain employees who disclose trade secrets to the Government (including in a court filing). The whistleblower immunity applies if the employee discloses a trade secret, but does so in one of these contexts:

  • A confidential disclosure to a Federal, State, or local government official, either directly or indirectly, or to an attorney (but only for the purpose of reporting or investigating a suspected violation of law); or
  • A disclosure made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.

NEW NOTICE REQUIREMENTS

The most important clause for employers to understand is the NEXT clause, which requires employers to provide notice of the whistle blower immunity. This clause says:

(3) NOTICE.—

(A) IN GENERAL.—An employer shall provide notice of the immunity set forth in this subsection in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.

(B) POLICY DOCUMENT.—An employer shall be considered to be in compliance with the notice requirement in subparagraph (A) if the employer provides a cross-reference to a policy document provided to the employee that sets forth the employer’s reporting policy for a suspected violation of law.

(C) NON-COMPLIANCE.—If an employer does not comply with the notice requirement in subparagraph (A), the employer may not be awarded exemplary damages or attorney fees under subparagraph (C) or (D) of section 1836(b)(3) in an action against an employee to whom notice was not provided.

(D) APPLICABILITY.—This paragraph shall apply to contracts and agreements that are entered into or updated after the date of enactment of this subsection.

This imposes an affirmative duty on employers to notify their employee of the immunity clause (the whistle blower protection) in the DTSA.This obligation arises whenever the business has a contract or agreement with an employee governing the use of confidential information (including trade secrets).

The notice about the whistle blower protection needs to be included in the confidentiality agreement that governs the use of the trade secrets/confidences. So if your employees each sign a confidentiality agreement (or employment agreement that includes confidentiality obligations) at the time of hiring, then this standard agreement should be modified to reflect the requirements of the law. This new language should be reflected in every contract addressing confidentiality provisions that is entered into on or after May 12, 2016 (today).

Old and existing contracts (those entered-into before May 12, 2016) do not need to be modified to reflect this new language, unless they are updated in any way. If you make any sort of update to a pre-existing contract that addresses confidentiality, then please make sure the modifications also include the new whistle blower protection notice language.

There is an option to publish a policy document including the appropriate notice, and then to cross reference that document in the agreements with the employees, consultants and contractors. If you do this, then you should be specific about the revision level of the policy document, to make sure that it includes the appropriate language.

Failure to provide notice can limit the company’s ability to collect certain damages and attorneys fees, to which the company might otherwise be entitled. Eliminating the chance of recovering attorneys fees can make a valid lawsuit economically undesirable.

APPLIES TO CONTRACTORS AND CONSULTANTS, TOO

The definition of employee for these purposes includes contractors and consultants!

(4) EMPLOYEE DEFINED.—For purposes of this subsection, the term ‘employee’ includes any individual performing work as a contractor or consultant for an employer.

So your consulting agreements and other agreements with independent contractors need to reflect this new disclosure language as well. This may be especially important when working with contractors who normally sign a non-disclosure agreement.

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About Jason Dickstein
Mr. Dickstein is the President of the Washington Aviation Group, a Washington, DC-based aviation law firm. He represents several aviation trade associations, including the Aviation Suppliers Association, the Aircraft Electronics Association, the Aircraft Fleet Recycling Association and the Modification and Replacement Parts Association.

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