Many companies attempting to avoid disclosures that cause embarrassment and exposure to civil and criminal liability have used restrictive non-disclosure agreements to silence whistleblowers. These agreements essentially constitute documents imposing corporate censorship to prevent disclosure of misconduct that harms the public. Earlier this year, the SEC took action to protect whistleblowers from these oppressive agreements in the context of Dodd-Frank.
The Dodd-Frank Act includes language that permits people to cooperate with the government by notifying the public and courts of inappropriate financial practices. The value of this law in safeguarding the financial system and protecting the public is evidenced by the important role of whistleblowers in exposing the misconduct of Bernie Madoff and Enron. The devastating impact of large scale financial misconduct that contributed to the financial meltdown in the U.S. can be exposed and prevented by freeing whistleblowers from restrictive confidentiality agreements.
Since enactment of Dodd Frank, companies have drafted elaborate and extremely restrictive non-disclosure agreements that are intended to handcuff whistleblowers. These agreements generally only permit revealing confidential information to the legal department of the offending company. The hammer used to enforce restrictions on disclosure of misconduct includes making such non-disclosure a condition of employment. Further, employees have been presented with confidentiality agreements that condition severance pay or the settlement of claims related to termination on accepting such censorship.
While no two non-disclosure agreements are identical, they tend to share some common features. A common provision within this type of restrictive confidentiality agreement only permits confidential information to be discussed with lawyers hired by the company. Many even prohibit discussing such information regarding illegal or otherwise improper practices with government regulators like the SEC. Some companies also impose a requirement that employees discuss information regarding the scope of inquiry under such government investigations with company representatives. In other words, innocent employees are essentially turned into informants for the company and forced to report on representatives of government agencies.
A particularly egregious aspect of these agreements involves the requirement that the existence of such agreements not be disclosed. Forcing employees to hide agreements that limit disclosure of illegal conduct and fraud by their employees amounts to having the wolf guard the henhouse.
Fortunately, the SEC has stepped in to put a stop to this tactic, which undercuts the purpose of qui tam claims and whistleblower statutes. In early April 2015, the agency levied huge fines on KBR, a massive defense industry contractor, for mandating that employees sign restrictive confidentiality agreements. The agreements were challenged by the whistleblower who exposed extensive fraud committed against the federal government by the defense contractor during the Iraq war. The whistleblower challenged the agreements, which were used by KBR to silence other employees with knowledge of information relevant to proving his fraud claims.
It is still too early to tell how this action will impact whistleblowers under laws relevant to other agencies and fraud outside the financial sector. The ruling marks the first time that a federal regulatory agency has fined a corporation for imposing non-disclosure agreements that impair the ability of an employee to report financial crimes. Hopefully, other state and federal regulatory agencies will take a similar stance.
Our Mississippi Qui Tam Attorneys represent individuals who exercise the courage to disclose fraud and other criminal activity under state and federal whistleblower laws. At Barrett Law, we are here to help. Contact our firm today at (800) 707-9577 to schedule your free consultation, so we can answer any questions you may have regarding filing your claim.