But what about illegal activity that employees may witness? Are they prevented from reporting that too, for fear of breaching their NDAs? Under the Defend Trade Secrets Act 2016 (“DTSA”), signed into law by President Obama on May 13, 2016, the short answer is “No.”
The DTSA expressly states that an individual cannot be held criminally or civilly liable under any federal or state trade secret law if they disclose a trade secret “(A)…in confidence to a federal, state or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.”(18 U.S.C. § 1833.) In other words, DTSA provides immunity to “whistle-blowers.”
The DTSA requires employers to alert their employees about the trade secret "whistle-blower immunity" clauses in any employee contract or agreement that is entered into or updated after May 13, 2016. In practice, this means employers should revise employment agreements, alert anyone who has signed one (e.g., employees, third-party contractors, and consultants) about the new law, and have them sign a revised agreement. Each company will need to determine its own appropriate revised NDA language. There is no particular penalty per se for non-compliance, but failure to comply may prevent the employer from recovering exemplary damages or attorney fees in an action brought under the DTSA for theft of trade secrets against an employee to whom no notice was provided.
While the full impact of DTSA on the area of trade-secrets law remains to be seen, one thing is clear: Employers should ensure that their NDAs comply with the new law. And that means changing employment agreements - right now.