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Employers Need to Review, Revise Standard Confidentiality Agreements and Policies in Response to New Whistleblower Protections Under Federal Law

October 19, 2016 | Legal Alert

Previously standard and accepted confidentiality provisions in employment agreements and workplace policies may now violate employee rights under recent changes to federal law. As a result, employers should review their confidentiality agreements, whistleblower policies, employee handbooks, codes of conduct, and settlement agreements to ensure they are in compliance with the new laws. 

Within recent months, Congress, the Security and Exchange Commission (SEC), and the Occupational Safety and Health Administration (OSHA) have all taken steps to prohibit language contained in employment agreements, releases, or contracts that restrict potential whistleblowers from contacting or communicating with law enforcement and regulatory agencies.  These new restrictions add to the National Labor Relations Board’s ongoing efforts to limit employee confidentiality restrictions, claiming they improperly restrict workers’ rights to communicate about the terms and conditions of employment. 

Notice Provision Now Required By the Defend Trade Secrets Act of 2016 

Almost all employers have trade secrets – or valuable commercial information that provides a business with an advantage over its competitors who do not have that information (such as financial information, confidential customer information, strategic plans, intellectual property, etc.).  Many employers have policies or procedures in place to protect against the disclosure of that information by current and former employees. 

Those policies may now require updating and special notices to employees in order to comply with the federal Defend Trade Secrets Act (the “Act”), which was signed into law in May. 

While the Act provides additional protections for an employers’ trade secrets, it also requires employers to comply with the Act’s new whistleblower protections for employees.  For example, the Act permits employees to disclose an employer’s trade secrets and confidential information to an attorney or federal, state, or local government official solely for the purpose of reporting or investigating a suspected violation of the law.  The Act also permits such disclosures to be made in documents that are a part of a lawsuit if such documents are filed under seal. 

Importantly, employers must provide written notice to employees of the Act’s whistleblower protections in any contract or agreement that governs the use of trade secrets or confidential information.  An employer is considered compliant with the Act’s notice requirement if the employer provides a cross-reference within the agreement to a policy document provided to the employee that sets forth the employer’s reporting policy for a suspected violation of law. Employers who fail to comply with the Act may not be eligible for exemplary damages or attorneys’ fees in any action against an employee who did not receive the requisite notice. 

SEC Requires Employers to Amend Severance Agreements 

Similarly, the SEC issued an order in August of 2016 finding that standard release language in settlement agreements with employees violated the law when it prohibited employees from sharing with anyone confidential information learned while employed by the company and required that the employee first receive permission from the employer prior to disclosing that confidential information to anyone – even during a legal investigation.  The SEC found the provision to be an impediment to whistleblowers wishing to communicate with the SEC about possible securities violations.  As a result of this finding, the SEC fined the company $265,000 and required that it contact all former employees who signed severance agreements containing this language to inform them that they were in no way prohibited from communicating with the SEC or from accepting a whistleblower award from the Commission. 

OSHA Takes Steps to Prohibit “Gag” Provisions in Settlement Agreements 

OSHA has also released new policy guidelines for language contained within settlement agreements. It revised its Whistleblower Investigations Manual to prohibit “gag” provisions that are commonly found in broad confidentiality and non-disparagement clauses, stating that “OSHA will not approve a ‘gag’ provision that restricts the complainant’s ability to participate in investigations or testify in proceedings relating to matters that arose during his or her employment.”  OSHA has established specific language that now must be included in settlement agreements and has determined that offending provisions cannot be saved by “except as provided by law” clauses. 

NLRB Continues to Claim Limits on Worker Confidentiality Agreements 

These recent decisions continue the trend started by the National Labor Relations Board (“NLRB”) over five years ago, which found some confidentiality clauses in employment contracts to be overbroad and per se unlawful because they prohibited employees from disclosing the terms of their employment.  The Board opined that overbroad confidentiality clauses could have a chilling effect on an employee’s right to discuss his wages, hours, and working conditions with others – including fellow employees – and could limit employees from engaging in union activity.  Several months ago, the Board extended its ruling to confidentiality clauses that include prohibitions against employees (1) sharing a broad range of personnel information without the employer’s consent and/or (2) criticizing publicly the company and its management.  The Board found that employees could construe such sweeping prohibitions in an employer’s confidentiality and non-disparagement clauses as treading upon their rights to discuss and object to employment terms and conditions and to coordinate efforts to organize to promote employee interests. 

With these recent developments, it is important that employers review and amend (as necessary) the language contained in their standard employment agreements, confidentiality agreements, severance agreements and releases, settlement agreements, whistleblower policies, and employee handbooks to ensure compliance with these new guidelines and laws. 

Flaster Greenberg attorneys routinely assist employers in Labor and Employment law compliance, including drafting of agreements and policies and handling whistleblower claims.  If you have any questions about these recent changes in the law, and how they could affect you or your business, please contact Melissa Davis, Michael Homans or Adam Gersh at Flaster Greenberg.

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