New Law Should Encourage Businesses to Update Their Employee Contracts

May 26, 2016

On May 11, 2016, President Obama signed the Defend Trade Secrets Act of 2016 (“DTSA”) into law. The goals of the DTSA include creating uniformity in the enforcement of trade secret protection across jurisdictions. In addition, under the DTSA, employers can now seek exemplary damages and attorney’s fees in certain cases involving the taking of trade secrets by an employee, consultant, or contractor for use in another business.

It is important to note that the DTSA outlines a couple of exceptions that permit such individuals to reveal trade secrets. In particular, an individual might be able to disclose a company’s trade secret in the following situations:

  1. Disclosure to the government, a court, or an attorney for the purpose of cooperating in a covered investigation, or
  2. Disclosure in a document filed in connection with a lawsuit or proceeding.

The exceptions do include a few qualifiers. For example, a trade secret disclosed to the government, a court, or an attorney must be done so “in confidence,” while any trade secret disclosed in a document filed in connection with a lawsuit or proceeding must be “made under seal.” Additionally, trade secret information might be fair game in anti-retaliation lawsuits. If an individual files a lawsuit for retaliation because he or she reported “a suspected violation of law,” the individual may have the green light to disclose the business’ trade secret to his or her attorney, as it will likely pertain to the court proceeding.

The foregoing exceptions are important because in order for an employer to obtain exemplary damages and attorney’s fees under the DTSA, the employer must provide notice of the immunity provisions in a contract or agreement with its employee, consultant, or contractor. The notice must be either set out within an agreement governing the use of confidential and trade secret information or in a policy document that is incorporated into the agreement by reference and given to the individual.

If an employer chooses not to update its contracts and agreements, and an employee, consultant, or contractor uses trade secrets in an alternate setting, the employer may still sue; however, it may not be entitled to exemplary damages or attorney’s fees under the DTSA. Accordingly, if a business already has contracts or agreements in place, it may be in the company’s best interest to revise them to include the notice provision and use the updated contracts or agreements going forward. The DTSA may give a company more ammunition in the fight to protect vitally important confidential information, but the ammunition might only be available to those companies who properly “load” their contracts.

If you have any questions about how the information in this article may affect you or your business, please contact Peter Richter at or (608) 257‑2281 or your Stroud attorney. 

DISCLAIMER: The information in this article is provided for general informational purposes only, is not necessarily updated to account for changes in the law, and should not be considered tax or legal advice.  This article is not intended to create, nor does the receipt of it constitute, an attorney-client relationship.  You should consult with your own legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.