Do Your Contracts Inadvertently Waive the Right to Exemplary Damages and Attorney Fees for Disclosure of Trade Secrets?

On May 11, 2016, the Defend Trade Secrets Act of 2016 (“DTSA”) was signed into law, which includes a lesser-known provision affecting the rights and remedies of employers, including hospitals, health systems and private practices, seeking to protect their trade secrets and confidential information.

In part, the DTSA (18 USC §1833) provides Federal and State criminal and civil immunity to individuals who disclose a trade secret to “a Federal, State, or local government official, either directly or indirectly, or to an attorney” when the sole purpose is to report a suspected violation of law. Moreover, the DTSA provides immunity to individuals using trade secret information in an anti-retaliation lawsuit, when the documents containing the trade secret are under seal and the trade secret is only disclosed pursuant to a court order.

Health care providers entering into agreements, or amending previous agreements, with employees, contractors and consultants that restrict the use and disclosure of trade secrets or other confidential information must include a notice of the DTSA immunity. The DTSA allows such notice to be either (1) directly in the language of the agreement, or (2) referenced in a policy that is provided to the employee, contractor or consultant and cross-referenced in the agreement. This requirement applies to agreements or amendments entered into after May 11, 2016.

If an employer fails to provide such notice, the employer may not be awarded exemplary damages or attorney fees made available under the DTSA against employees, contractors and consultants that misappropriate trade secrets. All employers, including health care providers, seeking to protect their trade secrets and confidential information through confidentiality agreements with their employees, contractors and consultants (or in their contracts with such parties) should make certain the contract includes the notice required under the DTSA.