In our recent webinar, The Recent SEC Attack on Confidentiality Agreements: What Employers Need To Know and Do Now, Labor & Employment attorneys Betty Graumlich and Amanda Haverstick, and Securities attorney Lisa Blackburn – who for ten years served as SEC Enforcement Division Counsel – provided practical advice for employers in the wake of the SEC’s April 1, 2015 prosecution of an employer based on the terms in a confidentiality agreement used during an internal investigation. The agreement at issue contained language that – until now – had been considered industry standard, best practices. If you missed the webinar, you can listen to the recording or download the PowerPoint presentation below.

Here are Three Top Takeaways, along with our view on What This All Means for Employers:

Three Top Takeaways

First: Employers must understand that the SEC will find a violation of Securities Exchange Act of 1934 Rule 21F-17 if an employer requires anyone (including a current or former employee) to sign a confidentiality agreement that conditions the individual’s discussion or disclosure of information regarding an internal investigation upon receipt of advance employer authorization. This is so because, according to the SEC, such a condition in a confidentiality agreement has the potential to “chill” whistleblower reporting to the SEC – even if the agreement in question does not actually deter any such whistleblowing.

Second: All signs point to broadened SEC scrutiny of all employer confidentiality agreements in the context of potential whistleblowing – indeed, an SEC industry “sweep” that could impact hundreds of companies. Among the signs are:

  • A March 2014 announcement from the SEC’s Office of the Whistleblower that confidentiality agreements were fair game for the agency; and
  • Widespread reports in 2015 that the SEC has sent out requests that dozens of public companies provide the SEC with copies of nondisclosure and severance agreements for review, as well as lists of all terminated employees since the Dodd-Frank effective date.

Third: The SEC’s stance is consistent with that of several other Executive Branch agencies that have recently been cracking down on confidentiality provisions that could chill employees' ability and willingness to speak up and make disclosures to the government. The target of these agencies has primarily been confidentiality, non-disclosure and non-disparagement clauses in a wide range of employer documents, including not only confidentiality agreements, but also workplace rules, employment contracts, and employee separation, severance, and settlement release agreements. The other federal agencies for employers to watch in this area include:

  • the National Labor Relations Board (NLRB) – which has recently filed suit against many employers, including non-union employers, based on language included in policies that the Board considers as “potentially chilling” of employees’ rights to engage in protected activity, as well as issued a March 2015 general counsel’s memorandum setting forth specific policy language that the NLRB does, and does not, consider lawful;
  • the Office of Inspector General – which recently decided that a federal contractor violated the False Claims Act by including certain confidentiality provisions in its employment agreements; and
  • the Equal Employment Opportunity Commission (EEOC) – which has filed multiple, still-pending lawsuits against employers arising from severance agreements that contained non-disclosure and non-disparagement clauses that the EEOC found unlawfully “chilling” of individuals’ rights to file discrimination claims.

What This All Means for Employers Employers should systematically revisit the confidentiality, non-disclosure, and non-disparagement clauses in all their employment agreements and policies – including clauses that once were considered standard best practices – as these may need to be revised to account for the changing legal landscape. A careful drafting exercise should permit employers to maximize their ability to safeguard proprietary information and protect internal investigation integrity, while minimizing the risk of regulatory agency enforcement action.