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Legal Update - April 2017 Newsletter

Yogi Patel - Tuesday, April 04, 2017

Dear valued clients and supporters: This month's newsletter will focus on: (1) challenges to digital arbitration agreements; (2) a payroll scam alert; and (3) the Defend Trade Secrets Act of 2016.

Digital Arbitration Agreements

When two parties enter into a contract, they may decide to agree to arbitrate, rather than litigate their claims. Parties do this because arbitration can be faster, cheaper, and private. While this practice has long-been commonplace, it is a somewhat recent phenomenon that companies have been seeking to insert arbitration clauses into contracts with their customers on digital platforms (websites). However, in addition to precluding an aggrieved customers access to the courts, an arbitration agreement can also seek to require that each customer bring his or her complaint individually, thereby eliminating the possibility of a class action suit. Because of these potential consequences and nature of consumer agreements, the majority of which are non-negotiable and go unread by the customer, advocates are now asking courts to place limits on arbitration language when it comes to consumer contracts. In one recent decision, a Federal District Court in New York sided with consumer advocates in finding that the arbitration language contained in Uber's customer agreement was unenforceable. The judge reasoned that because the arbitration clause was not readily apparent within the agreement and was not separately agreed to, that customers presumably were not aware of the rights they were waiving. Uber has now appealed to the U.S. Appeals Court for the Second Circuit.
In light of this decision, employers are cautioned to consider the design of their digital platforms, especially if the agreements relate to consumers and contain arbitration clauses.

Payroll Scam Alert

Employers should be on the lookout for an email scam in which hackers, posing as executives, send messages to payroll and HR professionals requesting personal information about employees. The emails can appear to be quite legitimate and are fooling employers into divulging the social security numbers, birth dates, full names, addresses, and W-2 Forms of employees. The information is then used to file fraudulent tax returns and collect refunds. If your company receives any emails requesting W-2 Forms and other personally identifiable information, do not transmit any such data without first confirming verbally with the requestor. If you do fall victim to one of these W-2 phishing scams, you should contact both the New York State Department of Taxation and Finance and the IRS so that they can identify suspect filings and implement additional measures to prevent paying out improper refunds.

Defend Trade Secrets Act of 2016 ("DTSA")

In May 2016, Congress enacted DTSA, which functionally expands the scope of federal intellectual property law. The DTSA provides for a private cause of action in Federal court by an owner of a trade secret that is misappropriated, provided that the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce. Under the DTSA, an owner of a trade secret can recover actual damages suffered by the plaintiff, unjust enrichment by wrongdoer, punitive damages and attorney fees. Punitive damages and attorney fees are only available to employers who are trade secret owners who assert a cause of action under the DTSA if they provide notice of immunity for whistleblowers that is also available under the Act to their employees. Furthermore, an action under DTSA can only be maintained if the owner of the trade secret took measures to protect the information they deem to be trade secrets from disclosure in the first place.

In light of this, employers are advised to update their polices and procedures to include reference to the DTSA whistleblower protections available in order to recover punitive damages and attorney fees and to take necessary measures to identify and protect their trade secrets to the extent they have not already.

Readers are encouraged to follow us on Twitter (@lloydpatelllp) and Facebook to receive updates on these and other issues throughout the month.

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