New Rule Cracks Down on Corporate Muzzling of Whistleblowers
Last week, the Department of Defense, General Services Administration, and NASA issued a final rule that will deny taxpayer funds to businesses that force employees to sign away their rights to blow the whistle on possible fraud, waste, and public health and safety dangers.
The rule implements section 743 of the 2015 Consolidated and Further Continuing Appropriations Act, which prohibits agencies from awarding contracts, grants, and cooperative agreements to entities that require employees or subcontractors to sign a confidentiality agreement that restricts their ability to report waste, fraud, or abuse to federal investigative or law enforcement authorities. It also requires contractors to notify employees that any such pre-existing agreements are no longer in effect.
It’s a relatively common practice in the business world to require employees to sign agreements forbidding the release of that business entity’s proprietary or confidential information. However, these agreements sometimes, in practice, go beyond protecting legitimately sensitive information and violate employees’ whistleblower rights or suppress the reporting of wrongdoing or matters affecting public health and safety.
Lately, the Securities and Exchange Commission (SEC) has been on a tear purging corporate America of overbroad confidentiality agreements and severance agreements that strip away financial incentives to blow the whistle. An example of the latter occurred this week when global investment manager BlackRock agreed to pay the SEC $340,000 to settle charges that it improperly used separation agreements that required employees, in order to receive severance payments, to waive their ability to obtain “incentives for [the] reporting of misconduct.” Other major companies busted recently by the SEC for violating whistleblower protection rules include Merrill Lynch, Health Net, and Anheuser-Busch.
The Project On Government Oversight supported the rule when it was proposed last March, although we also recommended a few fixes. We suggested that the rule cover confidentiality agreements arising out of civil litigation or signed at the behest of a federal agency. The rule-makers disagreed, adding language to the final rule that specifically excludes these types of agreements. The rule-makers also downplayed our concern that the rule does not mention whistleblower disclosures made to Congress. They justified this omission on the ground that “other statutes” (e.g., Federal Acquisition Regulation subparts 3.907 and 3.908) cover disclosures to Congress.
Nonetheless, we applaud the rule as a step forward in the protection of whistleblowers, which ultimately protects the public fisc and public health and safety. We hope vigorous enforcement of whistleblower protection laws and rules will be a priority for the Trump administration.