DTSA and Whistleblower Immunity

Last year, we applauded the carve-out for whistleblowers in the Defend Trade Secrets Act of 2016 (DTSA). However, a recent opinion of a U.S. District Court in the First Circuit undermined the protections afforded whistleblowers under the law. Instead of receiving whistleblower immunity from the lawsuit, it became a sword to gut a potential whistleblower action.

Whistleblower Retaliation

The facts at issue in Unum Group v. Loftus in the District of Massachusetts are straightforward. The employee was caught removing documents from the corporate office on multiple occasions. The company filed a lawsuit seeking return of their property, which it claims has confidential customer information, employee information, trade secrets, and protected health information.

The employee claimed immunity as a whistleblower. The law protects individuals from federal or state liability if they make a disclosure to an attorney solely for the purpose of reporting or investigating a suspected violation. However, the court refused to grant the motion to dismiss based on the whistleblower immunity provision because of an insufficient record to support or reject the affirmative defense at the early stage of the litigation. There was no record of a lawsuit at this point and it was not clear that the employee turned over all documents to his attorney, according to the court.

This is a fairly standard situation involving counterclaims against whistleblowers. The record needs to be developed in order to convince the court that an individual has only acted within their rights and is entitled to dismissal due to one or more defenses.

Perhaps the biggest problem is the preliminary injunction issued by the court. The defendant and his attorney are both ordered to deliver any documents or electronics to the company and destroy all copies of any documents taken. If the employee has not already provided those documents to the government, he will be unable to do so. If they proved fraud, it may go on unchecked now that the company has put them back in the box.

Furthermore, the public manner of the lawsuit destroys numerous aspects of current whistleblower law. If a qui tam lawsuit was filed, the False Claims Act requires that it be kept under seal. If both lawsuits are filed around the same time, the government won’t have much time to investigate before the company becomes aware of the investigation.

Concerns Raised

It also raises concerns about anonymous reporting with the SEC. If an individual is required to assert the defense and demonstrate proof, will this not become a manner to impede future communications with the SEC? The possibility is concerning.

Ultimately, the decision is the first interpreting the provision of the law. Hopefully, future courts will clarify its provisions to be more whistleblower-friendly.

How Do Whistleblowers Fit into the Defend Trade Secrets Act of 2016?

The Defend Trade Secrets Act (DTSA) of 2016 primarily focuses on the protection of trade secrets in the United States. While the act is primarily concerned with preventing the misappropriation of trade secrets, it does contain provisions that relate to whistleblowers. Here’s how whistleblowers fit into the DTSA:

1. Immunity for Whistleblowers: The DTSA includes a provision that provides immunity to individuals who disclose trade secrets in confidence to government officials or attorneys for the purpose of reporting a suspected violation of the law. Whistleblowers who disclose trade secrets in the course of reporting illegal activities are protected from legal action for trade secret misappropriation.
2. Whistleblower Protection Notice: The DTSA requires employers to provide a notice of the whistleblower immunity provisions in any contract or agreement with an employee, contractor, or consultant that governs the use of trade secrets or confidential information. This notice ensures that individuals are aware of their rights and protections under the act.
3. Whistleblower Exceptions: It’s important to note that the whistleblower immunity provisions of the DTSA do have some limitations. Whistleblower protections may not apply if the disclosure of trade secrets is made in a manner that is not in accordance with the law, such as disclosing the information to the general public or the media instead of a government official or attorney.
4. Confidentiality Preserved: The DTSA emphasizes that any disclosure made by a whistleblower to a government official or attorney must be done in confidence. This means that the whistleblower should take reasonable measures to maintain the confidentiality of the trade secret while reporting the violation.

The DTSA of 2016 is merely one of several laws in the United States that offer protection to whistleblowers. Other laws, such as the Whistleblower Protection Act and the Sarbanes-Oxley Act, provide additional safeguards for employees who report misconduct or illegal activities within their organizations. It’s advisable for whistleblowers to consult with legal professionals to fully understand their rights and protections under relevant laws.