Client Alert - Employment Law Update
Congress Passes Federal Trade Secret Law
On April 27, 2016, The U.S. House of Representatives approved passage of the Defend Trade Secrets Act of 2016. The measure, which has already been approved by the Senate, will be signed by the President and creates the first expansion of trade secret law in 30 years.
Trade secrets are a critical tool in protecting business assets. Unlike patents and copyrights, they never expire. They have, however, always been governed by state law. This has resulted in slight variances in applicable law from state to state, which meant facing different legal standards, discovery rules, and procedural requirements. For the first time, parties may now sue in federal court for trade secret misappropriation, which will achieve greater uniformity.
While including remedies that already exist under state law such as monetary damages, injunctive relief, exemplary damages, and attorney's fees, the new law includes two notable provisions. First, companies can now obtain an order that directs law enforcement to seize property in order to quickly reclaim stolen trade secrets. This can even be done without notifying a defendant. Because of the drastic nature of this remedy, it is only available in "extraordinary circumstances."
Secondly, to be eligible for exemplary damages or attorney's fees, an employer must give notice to its workforce that trade secrets may be disclosed to a government official or an attorney for the sole purpose of reporting or investigating a suspected legal violation. This whistleblower notification must be be included in any contracts with employees relating to the use of trade secrets or confidential information. Fortunately, the new law permits employers to modify existing confidentiality agreements by "cross-referencing to a policy document."
In addition, while the new law allows for the issuance of injunctions against former employees, preventing them from taking trade secrets to competitors, these injunctions cannot prevent a person from "entering into an employment relationship." Further, any injunctions must be based on "evidence of threatened misappropriation," and cannot be based merely on "information the person knows." These provisions will translate into narrower injunctions than those which could be obtained in state court.
What to Do
The new law does not displace state law, so employers will retain the right to protect trade secrets in state courts. This will create new strategic considerations when confronted with threatened misappropriation of trade secrets. This also presents an opportunity for employers to evaluate their use of trade secrets in general, and to update their confidentiality policies and employment agreements to address the new whistleblower requirement.
If you have any questions about how this legislative enactment will affect your business, or about your employment policies and practices in general, please contact Mr. Gonzalez at 312-558-9779 or at egonzalez@elvisgonzalezltd.com.
|