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A New Court Decision Reveals Pitfalls That May Prevent Whistleblower Immunity Under the Defend Trade Secrets Act

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Judicial opinions regarding the Defend Trade Secrets Act, which has been in effect since May 11, 2016, are beginning to trickle in. One in particular will be of interest to employers—Unum Group v. Loftus, 2016 WL 7115967, decided by the federal district court in Massachusetts in late 2016. The court rejected an employee’s motion to dismiss a trade-secrets claim against him because of the immunity granted to employees under the Act.

The Act allows "trade secret owners" (i.e., companies that have a protectable interest in certain business information) to bring lawsuits in federal court to protect their intellectual property.

The new law also grants immunity to any employee, contractor, or consultant who discloses trade secrets to federal or state law enforcement officials or to an attorney for the purpose of reporting or investigating a suspected violation. It is the employer's responsibility to provide written notice to employees, independent contractors, and consultants of this immunity.

In Unum Group v. Loftus, there was no doubt that Loftus had taken lots of information from the employer—two boxes of hard copies, a packed briefcase, a shopping bag filled with records, and a laptop. Nor was there doubt that the load included trade secrets and confidential information. But when Loftus was sued under the Act (as well as under various state-law theories), he asked the court to dismiss the case, invoking the immunity under the Act because, he said, he had given the information to an attorney for the purpose of reporting or investigating a suspected violation of state or federal law.

The court rejected this:  it was not enough to just plead the immunity defense. The court could not determine the significance of the information that Loftus had taken. Loftus had not filed a potential lawsuit or specified his potential claim. The court could not tell whether all the documents had been provided by Loftus to his attorney, or only some of them. As a result, the court denied Loftus’s motion to dismiss the case under the immunity provision in the Act.

This case has lessons for employers and employees. First, an employee sued under the Act must present evidence under the Act to invoke the immunity defense. Merely pleading an affirmative defense of immunity under the Act is not enough. Second, courts may be unwilling to consider this immunity as a broad prohibition against having to defend a lawsuit. (By contrast, public officials can assert qualified immunity when they are sued under 42 USC § 1983 for violation of federal statutes or the federal Constitution and often gain early dismissal of claims on the basis of the pleadings alone.)  Third, it may take a trial to determine whether the immunity defense succeeds. That removes the financial protection from the costs of defense that immunity often provides.