As the first year anniversary of the Defend Trade Secrets Act (DTSA) has just passed, it is worth taking a step back and taking stock of how courts have treated key provisions. This will be the first of several posts covering developments under the DTSA and analyzing how it has been used since its enactment.
One of the most-discussed features of the DTSA was its creation of a “whistleblower” immunity that allows employees to share evidence of an employer’s alleged misconduct with government authorities or present that evidence in support of a retaliation claim under seal in court and avoid a claim that the employee misappropriated trade secrets when they disclosed that information. This provision, 18 U.S.C. §1833, is the only provision of the DTSA that preempts state law, so it affords protection to an employee against an employer’s claims under the Uniform Trade Secrets Act or common law as well.
As readers may recall, the DTSA requires employers who want to take advantage of the DTSA’s full protections to amend their contracts, employee agreements, and policies to provide notice of that whistleblower defense to its employees, which has been broadly defined to include independent contractors. If a company fails to include that notice in its agreements or policies, it is foreclosed from seeking claims for attorney’s fees and exemplary damages under the DTSA. The DTSA broadly defines an employee to include “any individual performing work as a contractor or consultant for an employer” so both 1099 and W-2 employees are covered under this provision.
Not surprisingly, when the DTSA was enacted, many employers were concerned about what, if any notice, needed to be supplied to its employees about this immunity and to what extent they needed to amend their employment agreements and policies. Section 1833(b)(3)(B) makes clear that an employer can comply with this notice provision if its employment agreement simply cross-references a policy document that more fully describes the employer’s reporting policy for a suspected violation of the law. However, the DTSA does not define what kind of notice or language must be provided, so it remains an open question of whether a specific citation to the DTSA would be sufficient or whether the relevant language of the DTSA’s whistleblower provision needs to be included.
To date, there is only one case involving the DTSA’s whistleblower provision. This should not come as too much of a surprise since the whistleblower provision’s primary consequences — a challenge to an award of attorneys’ fees or exemplary damages under the DTSA for failure to provide notice of that immunity or the viability of the immunity itself– will generally require that a case have been fully litigated, something that has not happened with many DTSA cases.
The single case involving the whistleblower provision, Unum Group v. Loftus, 2016 WL 7115967 (D. Mass. Dec. 6, 2016), concerned an effort by an employee to affirmatively use that immunity to oppose a preliminary injunction request under the DTSA. In that case, the former employee, Timothy Loftus, was interviewed for an internal investigation into chis employer Unum Group’s claims practices. After the interview, Loftus was captured on surveillance cameras on the following Sunday emerging from his office with two boxes and a briefcase; two days later, he was seen on video exiting the business with a shopping bag of documents. Loftus refused to respond to questions and was seen leaving the office with his laptop and another shopping bag of documents. Although Loftus returned the laptop, he later declined to return the documents.
Fearing that Loftus would improperly use or disclose those documents, Unum Group filed a request for an injunction against Loftus, seeking the return of the documents. Loftus opposed the motion, arguing that he was a whistleblower entitled to immunity under the DTSA and he also moved to dismiss the complaint. The district court denied the motion to dismiss, reasoning that the record lacked facts to support or reject his whistleblower affirmative defense and finding that Unum Group had presented a plausible claim for misappropriation of trade secrets under the DTSA.
Turning to the preliminary injunction, the court declined to rule under the DTSA, and instead kept its analysis simple, confining it to the question of whether Loftus had “converted” the documents under Massachusetts common law. The court was forceful in its ruling, holding that there “is no question regarding the potential for irreparable harm if the injunction is denied” since “the documents contain an unknown number of trade secrets and potentially unquantified amounts of private health information that could cause irreparable damage to Unum’s business if released.” Emphasizing the privacy issues implicated by the documents, the court reasoned that “[c]onfidential health information should not be held hostage to an unfiled lawsuit, and Unum’s customers who are not yet on notice that their health information could have been compromised will be well served by Unum’s efforts to contain this information breach.” As a result, the court ordered Loftus and his counsel to return the documents back to Unum, destroy any copies and make an image of his computer laptop and flash drive for further review.
Takeaways: While this provision triggered a fair amount of commentary when the DTSA was released, there have not been many legal developments. If an employer wants to preserve its ability to seek attorneys’ fees or exemplary damages against an employee, it needs to provide notice of the immunity in its agreement or its policies. However, if an employer is not terribly concerned about recovering fees or exemplary damages from its employees (who may be judgment-proof), and it wants to avoid stirring up a hornet’s nest over this provision, it may decide not to include the notice. Its employees of course will still be entitled to the immunity, so long as they follow the strictures of §1833(b).
At some point, a court will have the opportunity to more fully consider the contours of the whistleblower immunity, but the immunity has not been around long enough for that analysis.