Companies cannot prohibit their former employees from collecting whistleblower awards, says the DOL in a recently released memo. Moreover, even asking employees to disclaim any knowledge of any legal violations by the employer is seen as potentially "discourag[ing]" employees from engaging in the protected activity of confidentially providing information to the government, according to the memo.
"No further recovery" clauses in severance agreements typically provide that the severance amount is the employee's complete recovery, and the employee will accept nothing more from any other source. These clauses, according to the DOL, need carve-outs that permit not only the reporting of suspected illegal activity to government agencies, but also permit the recovery of any whistleblower awards that result. The DOL notes that whistleblower awards are available under a variety of federal laws, including the Foreign Corrupt Practices Act, the Internal Revenue Act, the Commodity Exchange Act and the Motor Vehicle Safety Whistleblower Act.
Last month we advised employers of two recent SEC enforcement actions, in which the SEC takes the position that "no further recovery" clauses must include a carve-out permitting the recovery of SEC whistleblower awards under Dodd-Frank. In a recent memo amending its policy for approving settlement agreements in whistleblower cases, the DOL expands the SEC's position to all whistleblower bounty programs, including those that apply to nonpublic companies.
The DOL also seems to expand the protections for confidential reporting beyond what has previously been mandated. The SEC has long made clear that confidentiality agreements cannot purport to prevent an employee from communicating with the government, with or without notice to the employer. The DOL memo also calls foul on provisions that require employees to affirm that they have not previously provided information to the government, or to disclaim any knowledge that the employer has violated the law. Both of these affirmations are described as potentially "compromis[ing]" statutory and regulatory mechanisms for employees to provide information confidentially to the government.
Where to draw the line between an employer's legitimate interest in encouraging internal reporting and its prohibited interference in external reporting has been debated since at least the enactment of Dodd-Frank, and the DOL memo seems to move the line even further away from the employer.
The context of the memo is limited to the DOL's review of agreements settling active complaints that have been filed with OSHA. Nonetheless, the DOL's position will likely be extended to severance agreements that are signed before an active dispute arises, especially because severance agreements cannot lawfully prevent individuals from initiating a government investigation. Notably, the memo states that the DOL may ask parties to cure offending provisions by adding a disclaimer reaffirming the employee's rights under the whistleblowing statutes.
All companies should check their form severance agreements to ensure they (i) do not prohibit former employees from making reports to government agencies of suspected wrongdoing and (ii) do not prohibit employees from keeping whistleblower awards that may result. To the extent that employees are being asked to certify that they are unaware of legal violations, employers should be aware of this guidance from the DOL and, at a minimum, clarify that nothing in the agreement prevents the employee from engaging in protected whistleblowing rights.
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