Whistleblower Protection Rules Enforcement Necessitates Review of Confidentiality, Release, and Other Employee Agreements
The Securities and Exchange Commission, the Department of Labor, and other government agencies are aggressively enforcing their whistleblower protection rules. As part of this effort they are looking for employers using agreements that may dissuade employees from reporting violations of the law.
Confidential Information agreements and clauses which contain prohibitions on the disclosure of confidential information to anyone without the employer’s permission will likely be deemed by the government to violate whistleblower protection rules. Most information communicated by a whistleblower is confidential – that is, not generally known by the public or an employer’s competitors. So, according to the government agencies, these agreements prohibit employees from making whistleblower reports because the information reported is almost always confidential. One possible way to avoid this problem may be to include in the confidentiality agreement a provision which “carves-out” reports made to the government.
In an enforcement action brought by the SEC against a technology and engineering firm, the company consented to a cease and desist order which required it to amend its confidentiality agreement to add the following language to explain that it does not prohibit employees from reporting suspected violations of law to the government:
Nothing in this Confidentiality Statement prohibits me from reporting possible violations of federal law or regulation to any governmental agency or entity, including but not limited to the Department of Justice, the Securities and Exchange Commission, the Congress, and any agency Inspector General, or making other disclosures that are protected under the whistleblower provisions of federal law or regulation. I do not need the prior authorization of the Law Department to make any such reports or disclosures and I am not required to notify the company that I have made such reports or disclosures.
Releases are also under attack by government agencies if they can be interpreted as waiving the right of an employee to collect a whistleblower award.
Last month the SEC announced an enforcement action against a building products distributor for using severance agreements that arguably required employees to waive their rights to monetary awards if they filed a complaint with the SEC or another government agency. According to the SEC, by removing financial incentives that encourage whistleblowing the employer discouraged employees from reporting potential violations of the law. The employer consented to the entry of a cease and desist order and agreed to use the following language in its release/severance agreements to clarify that employees may make reports to government agencies and retain their rights to receive awards for providing information:
Protected Rights. Employee understands that nothing contained in this Agreement limits Employee’s ability to file a charge or complaint with the Equal Employment Opportunity Commission, the National Labor Relations Board, the Occupational Safety and Health Administration, the Securities and Exchange Commission or any other federal, state or local governmental agency or commission (“Government Agencies”). Employee further understands that this Agreement does not limit Employee’s ability to communicate with any Government Agencies or otherwise participate in any investigation or proceeding that may be conducted by any Government Agency, including providing documents or other information, without notice to the Company. This Agreement does not limit Employee’s right to receive an award for information provided to any Government Agencies.
Many standard releases/severance agreements contain language stating that the employee “retains the right to participate in any government action, but not the right to recover money damages or other individual legal or equitable relief awarded by any such governmental agency,” or words to that effect. In light of the government’s aggressive interpretation of its whistleblower protection rules, this “standard” language should be reconsidered.
Employers should also consider modifying release or severance agreement language stating that the “employee is entitled to no payments from the employer other than as set forth in this agreement,” or words to that effect. Likewise, “nondisparagement” clauses should be reviewed because they may be interpreted by government agencies as prohibiting employees from bringing whistleblower claims, as communicating information about violations of the law is, by its very nature, disparaging. If an employer continues to include “no further payments” and/or “nondisparagement” clauses in release or severance agreement agreements, then the employer should strongly consider including some form of a “protected rights” clause in those agreements.
OSHA – the Occupational Safety and Health Administration – has also jumped on the bandwagon. On September 15, 2016, the agency published new guidelines for approving settlements between employers and employees of whistleblower claims to ensure that settlements do not contain terms that could be interpreted to restrict future whistleblowing. The guidelines make clear that OSHA will not approve a whistleblower settlement agreement that contains provisions that may discourage whistleblowing, such as provisions that require employees to waive the right to receive a monetary award from a government-administered whistleblower program for providing information to a government agency about violations of the law, or provisions that require the employee to advise the employer before voluntarily communicating with the government or to affirm that the employee is not a whistleblower.
If OSHA determines that an agreement otherwise violates the new guidelines, OSHA may nevertheless approve the agreement if it includes the following language:
Nothing in this Agreement is intended to or shall prevent, impede or interfere with complainant’s non-waivable right, without prior notice to Respondent, to provide information to the government, participate in investigations, file a complaint, testify in proceedings regarding Respondent’s past or future conduct, or engage in any future activities protected under the whistleblower statutes administered by OSHA, or to receive and fully retain a monetary award from a government-administered whistleblower award program for providing information directly to a government agency.
Although OSHA’s new guidelines apply to the agency’s approval of settlements of whistleblower claims, the agency will likely be on the lookout for similar language in other employer – employee agreements to ensure that those agreements do not dissuade employees from pursuing whistleblower claims.
Going forward, employers should review their confidential information, release, severance, and other employee agreements, and related policies as well, to ensure that they are not interpreted by the government as dissuading whistleblower claims or other forms of communication with government agencies. Employers should also consult with their legal counsel about drafting “protected rights” or “carve-out” language that will help satisfy the concerns raised by multiple government agencies, and not just those raised by the SEC or OSHA.