FEDERAL TRADE SECRET LAW PASSED BY CONGRESS
In what has been described as “the single most important intellectual property development since… the America Invents Act,” Congress passed federal trade secret legislation that has been signed into law by President Obama. The Defend Trade Secrets Act establishes a federal civil claim for trade secret misappropriation, and is intended to give companies stronger options against rogue employees, foreign hackers, and others looking to steal trade secret information. Prior to the Act, trade secret claims were largely a function of state law, resulting in differences in treatment for the same conduct, depending upon the state in which the misappropriation took place.
Below are key features of the Act:
Federalize trade secret protection: Currently, victims of trade secret misappropriation must typically bring their claims in state court, which creates procedural hurdles when dealing with parties in multiple states or countries. The Act allows for a misappropriation claim to be brought in federal court if the trade secret is “related to a product or service used in, or intended for use in, interstate or foreign commerce.” This means plaintiffs can get into federal court much more easily.
No preemption of state trade secret law: The Act does not preempt state law, meaning that plaintiffs can file claims under federal and state law. Plaintiffs will also still have the choice of moving forward only on state law claims, and there will be more opportunity to forum shop between federal and state court. This can create some confusion where federal and state law allow for different results or remedies, and parties will need to be sure to comply with both federal and state law.
Prohibits trade secret misappropriation: The definition for “Trade Secret” is effectively the same as that used in the Uniform Trade Secrets Act enacted to varying degrees by 47 states. Threatened or actual misappropriation is prohibited, meaning a plaintiff does not have to wait for actual harm before seeking relief in court.
Ex parte seizure of misappropriated trade secrets: In a significant difference with most state laws, the Act allows for seizure of stolen trade secrets prior to a full court hearing if there is a showing of “extraordinary circumstances” to prevent the use or dissemination of the stolen trade secret. The seizure is handled by law enforcement and the seized materials remain in court custody pending a court determination after a hearing. If a seizure order is entered, the court must schedule a hearing within 7 days. The order should be entered only when there is no other adequate equitable relief, the trade secret has been misappropriated, and the trade secret is in danger of destruction/removal.
Three year statute of limitations: Plaintiffs will have three years to bring their claims.
Non-recognition of inevitable disclosure doctrine: The Act may not “prevent a person from entering into an employment relationship” absent evidence of bad acts, i.e., actual or threatened misappropriation. In other words, plaintiffs cannot make an inevitable disclosure argument under the Act to prevent employees from joining competitors, where the employee is not alleged to have engaged or be likely to engage in misconduct. The inevitable disclosure doctrine will remain available under state law to the extent the relevant state recognize the doctrine.
Whistleblower protection: Trade secret disclosure to government officials and counsel in the act of whistleblowing is protected activity, as is filing trade secrets under seal as part of an retaliation lawsuit. Significantly, nondisclosure agreements need to provide notice of the whistleblower protections and companies should review their NDAs to make sure they satisfy this requirement.
Litigation Protections: The owner of a trade secret will have greater opportunity to keep the trade secret under seal in litigation.
Remedies: Potential remedies include: (a) injunctive relief; (b) seizure of stolen trade secrets; (c) damages for actual loss or in amount of unjust enrichment; (d) royalty payments in lieu of other damage assessments; (e) double damages if willful and malicious misappropriation; and (f) fees.
It is premature to assess how effective tools like ex parte seizures will be or whether these provisions will be subject to abuse. However, it is certain that this Act will impact all entities with trade secrets and all relationships (whether employer/employee; company/contractor; business/business; or otherwise) where trade secrets are disclosed. Companies would be wise to take the following immediate steps in response to the Act:
Review all nondisclosure provisions in agreements to confirm they comply with the whistleblower protection disclosure. To the extent they are not, companies should strongly consider revising their agreements so as not to violate the Act.
Review and revise, as appropriate, all trade secret protection policies and practices both to take advantage of the Act’s protections and as a best practice. Remember, the Act only covers trade secrets related to interstate or foreign commerce, so the connection should be clear in agreements and other documents.
Make sure that their employees or agents are not taking other companies’ trade secrets and incorporating them into their own business information. The seizure provision can effectively shut down businesses for a week, which would cripple operations and create a public relations nightmare. The incentive for companies to have procedures in place to make sure new hires and relationships are not taking other companies’ trade secrets with them is only increased by the law.
For those whose businesses rely upon the use and protection of trade secrets, this Act speaks to a concern that has been raised for years. While how it is implemented and interpreted is crucial, the Act’s passage is an important first step in helping to further protect trade secrets.
The General Counsel for the National Labor Relations Board recently issued an internal memo to all Regional Directors and Officers, outlining the types of cases and issues that are of “particular interest” and should be submitted to the Division of Advice rather than be decided by the Regional Office where the charge is filed (hence, allowing the General Counsel’s office in Washington, D.C. to make the decision whether to prosecute in cases involving certain hot-button issues). The list consisted of three groups:
1. Matters that involve General Counsel initiatives and/or priority areas of the law and labor policy
Among the list of matters in this first group, the General Counsel specifically included:
Cases involving the application of Purple Communications (holding that employers generally could not bar employees from using company email for personal reasons, including union organizing, during non-work time) to electronic systems other than email (i.e. text messages, social media); cases involving employer denial of access to its email system; and cases presenting the question of whether an employer engaged in unlawful surveillance of employee emails;
Cases involving the applicability of Weingarten principles in non-unionized settings (Weingarten rights provide union employees the right to have a union representative present at meetings where the employee could receive discipline).
Cases involving allegations that “English-only” policies violate the National Labor Relations Act (“NLRA”); and
Cases involving the question of whether the misclassification of employees as independent contractors violates the NLRA.
2. Difficult legal issues that are relatively rare in any individual region and issues where there is no governing precedent
Among the list of matters in this second group, the General Counsel specifically included:
Cases involving the question of what suffices for purposes of good faith bargaining under the Board decision in Alan Ritchey (invalidated by Noel Canning, but General Counsel has argued for its re-adoption);
Cases involving whether a novel form of conduct (e.g. excessive use of loudspeakers, corporate campaigns) constitutes a violation of the NLRA; and
Cases involving the rights of contractor employees, who work on another employer’s property, to have access to the premises to communicate with co-workers or the public.
3. Matters that have traditionally been submitted to the Division of Advice
Among the list of matters in this third group, the General Counsel specifically included:
Subpoena authorization issues; and
Cases where the Region lost an Administrative Law Judge Decision (“ALJD”) on a Division of Advice-authorized legal theory and cases where an ALJD raises novel or complex questions.
The General Counsel noted that the above list is not exhaustive and reminded Regional Directors and Officers to continue to seek clearance from the Division of Advice before taking controversial positions, and to make Operations-Management aware of high profile cases.
In addition to the cases and issues outlined in the internal memo, the General Counsel also issued a Report on the Midwinter Meeting of the ABA Practice and Procedure Under the NLRA Committee of the Labor and Employment Law Section, highlighting additional issues of importance including:
Cases involving whether a successor that intends to retain all the predecessor employees should have an obligation to bargain with the union before setting initial terms of employment, even if it is not a perfectly clear successor under the narrow test enunciated in Spruce Up; and
The handling of cases involving D.R. Horton/Murphy Oil issues (i.e. mandatory arbitration agreements).
Many employers will likely find themselves dealing with a host of the above hot-button issues throughout this year, such as employee use of company electronic systems (including text messages and social media), surveillance/monitoring of employee emails, policies requiring employees to speak English, and potential misclassification of employees as independent contractors. Accordingly, they should speak to their labor and employment counsel to confirm that their conduct and policies are in compliance with relevant federal law and to avoid any unnecessary charges filed by the NLRB.
Since its enactment in 1993, understanding the Family and Medical Leave Act (“FMLA” or “the Act”) at times has been a challenge for employers and employees alike. This is so even though its regulations have been revised to provide clarity and courts have issued many decisions interpreting and explaining it. Apparently recognizing this, in June 2012, the Department of Labor ("DOL") issued a 20-page guide to employees called “Need Time? The Employee’s Guide to the Family Medical Leave Act.” The guide can be accessed at: http://www.dol.gov/whd/fmla/employeeguide.htm. While the employee guide has offered a basic roadmap for employers on how to comply with the FMLA, on April 25, 2016, the DOL announced the release of its guide specifically addressed to employers, called “The Employer’s Guide to The Family Medical Leave Act.” See http://www.dol.gov/whd/fmla/employerguide.pdf.
The employer’s guide is meant to complement the employee guide and, according to the DOL, was issued “to provide essential information about the FMLA, including information about employers’ obligations under the law and the options available to employers in administering leave under the FMLA.” The employer’s guide is organized to track chronologically the events that typically occur with an FMLA leave request, beginning with the employee’s request for leave and ending with the employee returning to work after the leave.
The employer’s guide should serve as a useful resource for employers on the FMLA. It defines many of the important terms in the Act, contains specific citations to the FMLA regulations, provides illustrative graphics succinctly explaining the Act’s requirements and the typical FMLA process (including a graphic called “The Employer’s Road Map to the FMLA” on page 8 and a helpful time line showing the interplay between Military Family Leave and FMLA leave, on page 45), and includes sections called “Did You Know?,” which draw attention to lesser known requirements of the FMLA. That said, it is important that employers understand that the employer’s guide answers some of the most common questions that typically arise under the FMLA. Accordingly, the guide may not address many scenarios that have frustrated and confounded employers over the years. It cannot and does not address each and every court decision interpreting the Act’s provisions.
For example, while the guide accurately explains that a “Covered Employer” may include entities that are a single or joint employer with the direct employer, the guide does not explain that some courts have held that individuals may be deemed an employer under the Act. Specifically, the Second Circuit Court of Appeals in Graziando v. Culinary Inst. Of Am. recently held that an individual may be liable under the FMLA if he/she: “(1) had the power to hire and fire the employee[s]; (2) supervised and controlled employee work schedules or conditions of employment; (3) determined the rate and method of payment; and (4) maintained employment records.” In Graziando, the court analyzed these factors “with an eye to the ‘economic reality’ presented by the facts of each case,” and held that a jury could find that the individual defendant – an HR Director - was plaintiff’s “employer.”
In addition, even though the interaction between the FMLA and various federal, state, and local laws can be quite complex, the guide serves only as a reminder to employers that there could be this interaction and only generally addresses some of the issues that could arise with respect to that. In light of the current trend of local governments enacting leave laws of their own, employers are cautioned to seek legal counsel to determine if any of these laws apply to them.
Take away: while the employer’s guide to the FMLA is user-friendly, is written specifically for the employer, and provides a clear and succinct summary of the FMLA, certain situations may require a deeper or more case-specific understanding of how the DOL or courts have applied the Act. In those instances, employers should seek legal counsel to ensure compliance.
The U.S. Equal Employment Opportunity Commission (the “EEOC”) recently filed its first two federal lawsuits alleging employment discrimination on the basis of sexual orientation, demonstrating the EEOC’s intent to enforce Title VII protections for lesbian, gay, bisexual, and transgender (“LGBT”) individuals.
On March 1, 2016, the EEOC filed a suit in Pennsylvania, captioned as EEOC v. Scott Medical Health Center, P.C. In Scott, the EEOC alleges that a male employee was subjected to offensive, anti-gay comments. The complaint also asserts the employee reported the behavior to his employer, but his concerns were ignored, which resulted in the employee’s resignation.
That same day, the EEOC filed a second action in Maryland, stylized as EEOC v. Pallet Cos. d/b/a IFCO Systems NA, Inc. In this action, the EEOC claims that a supervisor harassed a female forklift operator on the basis of her sexual orientation, including telling the employee, “I want to turn you back into a woman.”
Title VII prohibits discrimination on the basis of race, color, sex, religion, and national origin. However, the statute does not expressly prohibit sexual orientation discrimination, and currently, there are no other federal laws that generally prohibit discrimination of the basis of sexual orientation. In fact, federal courts have held that Title VII does not cover discrimination based solely on an individual’s sexual orientation. On the other hand, courts have found that discrimination can be based upon sex stereotyping (i.e. discrimination based on one’s perceived gender non-conforming characteristics).
Despite the lack of an express federal prohibition, over twenty states and a number of cities and local municipalities have enacted laws prohibiting discrimination on the basis of sexual orientation, including Philadelphia, Maryland, and New Jersey. While Pennsylvania has not enacted any statewide protections, it was the first state to issue an executive order prohibiting sexual orientation discrimination in state employment.
So what is the takeaway? The EEOC has shown it will pursue actions against employers for discrimination based on sexual orientation. The cases referenced above will likely not be decided for some time, but employers should be proactive to avoid potential litigation. As such, employers should review their current policies to address the EEOC’s current position, including implementing anti-discrimination and anti-harassment polies in the workplace and providing necessary training on such policies. Additionally, employers must confirm that their policies comply with any applicable state and local laws.