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Whistleblowers Silenced by Non-Disclosure Agreements

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On July 25, the Project On Government Oversight, along with more than 50 other organizations, sent a letter to the Securities and Exchange Commission (SEC) expressing concern over the growing problem of silencing whistleblowers. Many companies regulated by the SEC are now requiring employees reporting misconduct to sign non-disclosure agreements (NDAs) that undermine the force and efficacy of the SEC Whistleblower Program.

Retaliation against whistleblowers is a growing problem. A 2012 Ethics Resource Center (ERC) survey found that that 22 percent of corporate employees who reported misconduct faced retaliation, up from 12 percent in 2007. Most alarming, increases in the incidence of retaliation are outpacing the overall rate of increases in whistleblowing disclosures. Our letter to the SEC summarizes a key finding of the report, saying, “While there is a low incidence of whistleblower retaliation in companies with strong ethical program [sic], the ERC survey found that these organizations also represent the greatest uptick in reports of retaliation. In other words, even strong ethics programs alone are an inadequate deterrent.”

POGO is extremely concerned that SEC-regulated companies are infringing on current and former employees’ right to blow the whistle. The letter and a separate petition for rulemaking urge the SEC to issue a policy statement regarding the scope of employment protections available to SEC whistleblowers, and the intent to prosecute companies that violate these protections. The letter also asks the SEC to engage in appropriate rulemaking to clarify and strengthen whistleblower protections; hold public hearings to discuss the problem of workplace retaliation and ways to increase reporting; and create an Advisory Committee on Whistleblower Reporting and Protection.

Whistleblower attorneys say they are seeing a dramatic increase in the use of potentially illegal NDAs since the Dodd-Frank Wall Street Reform and Consumer Protection Act, which established the Office of the Whistleblower at the SEC, went into effect in 2010. Dodd-Frank created a program to reward whistleblowers, which many corporate executives complain discourages employees from reporting problems to their companies in order to “cash in” on a potential reward. However, employment lawyers say this is unfounded speculation by companies who likely have something to hide. 

POGO has long been concerned about the use of these non-disclosure agreements in federal agencies and contracted companies. In June, POGO sent a letter to Attorney General Eric Holder asking the Justice Department to investigate federal fund recipients using confidentiality or non-disclosure agreements that infringe current and former employees’ federal whistleblower protections in violation of the False Claims Act (31 U.S.C. §3730(h)), the Federal Acquisition Regulation (48 C.F.R. Subpart 3.9), and other federal whistleblower protection laws (e.g., 10 U.S.C. §2409 and 41 U.S.C. §4712). These federal laws and regulations bar contractors and grantees from retaliating against whistleblowers who report allegations of fraud, waste, mismanagement, and other abuses to government authorities.

The Washington Post has reported about multiple instances of federal fund recipients using NDAs to prevent whistleblowers from reporting misconduct to federal authorities. In February, the Post exposed Kellogg Brown & Root’s (KBR) requiring employees to sign internal confidentiality statements prohibiting them from discussing misconduct allegations without permission from KBR’s lawyers. KBR claims the confidentiality statement is designed to protect the integrity of the company’s internal review process, which is not meant to conceal information but rather to ensure that unfounded complaints are not publically circulated. A federal judge ruled earlier this year that the agreements were not protected by attorney-client privilege, but a three-judge appellate court panel in June sided with KBR. The plaintiff says he plans to appeal.

The Post profiled International Relief and Development (IRD) in May, a humanitarian organization that has received $1.9 billion in grants and cooperative agreements from USAID, more than any other nonprofit relief and development organization. For years, federal auditors have questioned IRD’s work in Iraq and Afghanistan and called for better project oversight. Unfortunately, former IRD employees told the Post that they were barred from sharing their experiences because of confidentiality agreements, which threaten departing employees with lawsuits for making any statements criticizing IRD. On July 31, Special Inspector General for Afghanistan Reconstruction (SIGAR) John F. Sopko said that more than half of the separation agreements signed by departing IRD employees contain provisions that violate whistleblower protection laws. The organization announced that it was changing these agreements “to ensure that our policies conform to the latest developments in employment law.”

In June, A third Post report revealed that the U.S. Department of Energy (DOE) had asked contract employees at the Hanford plutonium processing facility in Washington State to sign NDAs that prevented them from reporting wrongdoing without getting approval from an agency supervisor. The agreement also prevented these employees from using any information in exchange for a financial reward, a violation of the False Claims Act which allows employees to collect a portion of fraud recoveries.

In July, Representative Jackie Speier (D-Calif.) spoke on the House floor about whistleblowers at the San Onofre Nuclear Generating Station in San Diego County whose revelations had prevented a “Fukushima-like meltdown within 50 miles of 8 million Americans.” Speier said that, had those contractor employees signed NDA’s like those at DOE’s Hanford facility, the results could have been catastrophic. She introduced an amendment to the $34 billion Energy and Water Development and Related Agencies Appropriations Act of 2015 that emphasizes funds must not be used to violate federal contractor whistleblower protection laws. She said, “In many instances DOE is picking up the legal tabs for these contractors, funding long legal battles against the very whistleblowers who have bravely come forward to protect public health and safety.” The amendment prohibiting this anti-whistleblower sponsorship was approved without opposition.

Unfortunately, other executive branch agencies are also muzzling whistleblowers. In his April review of the implementation of the Whistleblower Protection Enhancement Act (WPEA), Senator Chuck Grassley (R-Iowa)—a longtime advocate of increased whistleblower protections—revealed that most of the fifteen executive branch departments’ NDAs violate provisions of the WPEA. “Federal employees have rights and obligations to report wrongdoing to Congress or Inspectors General.  And, even though federal law protects their right to do so, employees are led to believe that they have signed away their rights to speak outside the chain of command.  As a result, employees witnessing wrongdoing often remain silent,” he said. “The taxpaying public has a right to know about the government’s dirty laundry.”

POGO firmly believes that whistleblowers are the first and best line of defense against waste, fraud, and abuse in federally funded programs. We will continue to fight against government and corporate policies that threaten and intimidate potential whistleblowers. Some agencies have heard our message, but others clearly still don’t get it.

Image by Flick user Juli Shannon.

By: Max Johnson
Intern, POGO

Max Johnson photo At the time of publication Max Johnson was an intern with the Project On Government Oversight.

Topics: Whistleblower Protections

Related Content: Non-Disclosure Agreements

Authors: Max Johnson

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