The Cost of Buying Silence – Non-disclosure Provisions Run Afoul of Federal Agencies

There’s an inherent tension in requiring an employee to sign an agreement restricting his or her ability to discuss activity in the workplace. On one hand, employers with confidential business practices and trade secrets need to maintain those investments in intellectual capital both during and after employment. On the other, these agreements can stifle both the rights of employees to seek redress of workplace grievances as well as restrict the ability of regulatory agencies to investigate and correct employer practices or violations of the law. The tenor of recent enforcement actions by various agencies as to strict non-disclosure agreements (“NDAs”) and non-disclosure provisions in separation agreements should give employers cause to re-evaluate their own attempts to limit liability.

The SEC and EEOC may not have much in common from a regulatory mandate, but both agencies have been faced recently with the thorny issue of stifled employee cooperation and how it affects their missions.

The Whistleblower Protection Enhancement Act of 2012 strengthened protections for such whistleblowers who can disclose evidence of waste, fraud or abuse to federal regulators. In October of last year, the SEC was asked by several members of the House Financial Services & Oversight Community to giva young man showing a confidentiality agreement documente added scrutiny to employer agreements that potentially violate whistleblower protections. On April 1 of this year, the SEC announced the first-ever enforcement action against a company for overly-restrictive language in confidentiality agreements, charging KBR, Inc. with violations of whistleblower protections. KBR had non-disclosure provisions in employee agreements regarding internal investigations that prohibited discussing any matters with outside parties without prior approval of the legal department, warning that employees could face discipline or be fired for doing so. Even though there were no actual instances of this provision stifling a whistleblower, the SEC determined that such a blanket prohibition on that conduct could have a chilling effect on the willingness of employees to report conduct to regulators.

The EEOC has brought similar enforcement actions, such as the two it filed last year concerning separation agreements – EEOC v. CVS Pharmacy, Inc. no. 1:14-cv-00863 (N.D. Ill. 2014) and EEOC v. CollegeAmerica Denver, Inc., no. 14-cv-01232-LTB (E.D. Co. 2014). In both of those cases, the EEOC brought actions against employers with separation agreement forms that included strict confidentiality clauses and provisions forbidding “nondisparagement.” The EEOC’s position is that, similar to the provisions challenged by the SEC, these elements of separation agreements can be construed as to prevent an employee from discussing workplace conditions with the EEOC. The agreements didn’t go far enough, in the EEOC’s eyes, to make it clear that employees can participate in investigations or file charges without violating the agreements. While the EEOC hasn’t been successful in either case (both cases were largely unsuccessful at the trial court level, although for largely technical reasons – both are pending final resolution), these actions are likely the tip of the iceberg for enforcement and give insight into issues the EEOC will likely focus on.

Even the National Labor Relations Board has been scouring employee handbooks, looking for language of confidentiality that could stifle protected concerted employee activity under §7 of the National Labor Relations Act.

With all of these agencies on the warpath, employers should take care in drafting any agreements with non-disclosure provisions and review current forms for language that might run afoul of whistleblower protections, employee rights to cooperate with agencies, or even employee rights to discuss workplace issues with each other.

First and foremost, rather than including sweeping provisions of confidentiality, employers should narrow the types of information to which confidentiality provisions apply. Agreements should also include carve-out language that makes clear to employees that any rights or protections available to them under whistleblower or employment laws are not hindered in any way by these terms of the agreement. Provisions should explicitly state that employees also may participate in agency investigations. This carve-out language should be bold and prominently-placed.

Finally, the Whistleblower Protection Enhancement Act requires that non-disclosures for federal employees include the following language:

“These provisions are consistent with and do not supersede, conflict with, or otherwise alter the employee obligations, rights, or liabilities created by existing statute or Executive order relating to (1) classified information, (2) communications to Congress, (3) the reporting to an Inspector General of a violation of any law, rule, or regulation, or mismanagement, a gross waste of funds, an abuse of authority, or a substantial and specific danger to public health or safety, or (4) any other whistleblower protection. The definitions, requirements, obligations, rights, sanctions, and liabilities created by controlling Executive orders and statutory provisions are incorporated into this agreement and are controlling.”

These types of enforcement actions will only increase in number, so employers should review and revise any agreements with non-disclosure provisions that could be viewed as a restriction on employee rights or interference with regulatory investigations.