Two federal agencies, the National Labor Relations Board and the Securities and Exchange Commission, engaged in recent actions that, while unrelated to one another, will require every employer to take a closer look at employee handbooks, employment agreements, severance/separation agreements, corporate compliance and ethics programs, media policies...yes, just about every employee-related document dealing with confidentiality.
As we discussed in a recent Informed Employer article, the NLRB’s Office of General Counsel issued a Memorandum on March 18, 2015, that takes the position that many typical employee handbook policies are in violation of the National Labor Relations Act because they have a chilling effect on the right of employees to engage in protected concerted activity (i.e., the right of employees to discuss wages, hours, and other terms and conditions of employment with co-workers and even those outside the workplace).
Take a look at the types of rules found unlawful by the NLRB and think about these in the context of your own employee handbook:
- Do not discuss customer or employee information outside of work, including phone numbers and addresses.
- You must not disclose proprietary or confidential information about the Company or other employees if that information relating to the Company’s employees was obtained in violation of law or lawful Company policy.
- Never publish or disclose the Company’s or another’s confidential or other proprietary information.
- Never publish or report on conversations that are meant to be private or internal to the Company.
- Do not disclose details about the Company.
- Sharing of overheard conversations with your co-workers, the public, or anyone outside of your immediate work group is strictly prohibited.
- Discuss work matters only with other employees who have a specific business reason to know or have access to such information.
- Do not discuss work matters in public places.
- If something is not public information, you must not share it.
What is considered lawful? The NLRB stated that these confidentiality-related rules are lawful on their face:
- Do not engage in unauthorized disclosure of business secrets or other confidential information.
- Misuse or unauthorized disclosure of confidential information not otherwise available to persons or firms outside the Company is cause for disciplinary action, including termination.
- Do not disclose confidential financial data, or other non-public proprietary company information.
- Do not share confidential information regarding business partners, vendors or customers.
Generally, the NLRB acknowledges that an employer’s confidentiality rules will be lawful if, when viewed in context, employees would reasonably understand that the rules do not prohibit them from engaging in concerted protected activity. With due respect to the NLRB, this distinction may not always be obvious to your employees.
Let’s turn now to the SEC and a development that is of paramount importance for all public companies and other entities that are subject to the regulatory authority of that agency. On April 1, 2015, the SEC announced that it has settled an administrative enforcement action against KBR (formerly Kellogg Brown & Root), historically one of the largest government contractors.
KBR has an internal process to investigate reports of ethics and compliance violations reported by employees, including potential securities law violations. KBR’s internal investigative process involves engaging its Law Department to interview the employee who made the report and any others who might have relevant information. As part of that process, KBR requires each interviewed employee to sign a confidentiality statement that prohibits him/her from going outside the company and disclosing any details about the investigative interview or the subject matter of the interview without the prior agreement of the Law Department. The confidentiality statement provides that a violation may result in disciplinary action, up to and including termination.
The SEC took the position that this confidentiality statement violated the SEC’s whistleblower rule which was established by the Dodd-Frank Act. The rule prohibits any action that impedes an individual’s direct communication with SEC staff regarding a potential securities law violation. The SEC and KBR agreed on a $130,000 civil penalty and other remedial action, including adding clarifying language to the confidentiality requirement and requiring KBR to contact every employee who signed a confidentiality statement within the last approximately five years and advising him/her that they may report issues to the SEC without the company’s prior approval.
The SEC has expressed serious concerns about confidentiality provisions that appear in confidentiality agreements, separation agreements, and in other documents that govern the employer-employee relationship. The agency’s concern is that these contractual provisions and employment policies discourage employees from reporting securities law violations to the agency, i.e, their right to be whistleblowers. At this point, it is unknown whether the SEC’s enforcement action will be extended to employment agreements, but if your company is subject to the SEC’s authority, it would be beneficial to review those agreements, as well as other employment policies and forms, so that you can mitigate the risk of an SEC enforcement action.
As is true of every legal development, you are encouraged to consult with legal counsel before making changes to your documents, but each of these developments is important and every employer needs to understand the risks of not taking action.