dolThe Government Accountability Project (GAP) and Zuckerman Law recently petitioned the U.S. Department of Labor (“DOL”) to issue rules and guidance prohibiting “de facto” gag clauses in settlement and severance agreements that dissuade whistleblowers from engaging in protected activities.

The DOL, which enforces more than 20 whistleblower protection laws across several industries, already requires agency approval of settlement agreements in whistleblower cases to protect against “gag provision[s] that restrict[ ] the complainant’s ability to participate in investigations or testify in proceedings relating to matters that arose during his or her employment.”  According to the Petition, while the DOL has curbed the use of clauses that expressly preclude a whistleblower from engaging in protected activity, “various forms of subtle gag provisions” have crept their way into settlement and severance agreements.

The Petition identifies such “de facto” clauses as: (i) “affirming that [the] employee has not engaged in confidential whistleblowing and requiring advanced notice of cooperation with government investigations”; (ii) “waiving the right to recover a whistleblower reward”; (iii) “overly broad confidentiality and non-disparagement clauses, often accompanied by penal liquidated damages provisions”; and (iv) “affirmations or attestations disclaiming knowledge of any violation of law committed by the employer.”

The Petition is just the latest call for government agencies to scrutinize contractual impediments to whistleblower complaints.  Indeed, in July 2014, Labaton Sucharow LLP and the GAP requested that the SEC “clarify and strengthen certain aspects of the SEC Whistleblower Program” by engaging in “appropriate rulemaking.”  Moreover, last week, the SEC announced that it issued a $130,000 fine against a company for a confidentiality agreement that, in the SEC’s view, could potentially chill an employee’s ability to communicate with the SEC about a potential securities violation.  The Financial Industry Regulatory Authority (FINRA) has taken a similar course of action in recent months, warning employers about agreements that may impede employees from blowing the whistle.

We will continue to monitor the status of the pending DOL petition and report back to our readers.  In the meantime, given the increased regulatory scrutiny of confidentiality provisions and agreements, employers should continue to review and, if necessary, adjust their policies and agreements to ensure compliance with applicable laws, rules, and guidance.


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Photo of Lloyd B. Chinn Lloyd B. Chinn

Lloyd B. Chinn is a partner in the Labor & Employment Law Department and co-head of the Whistleblowing & Retaliation Group. He litigates employment disputes of all types before federal and state courts, arbitration tribunals (e.g., FINRA, JAMS and AAA), and before administrative…

Lloyd B. Chinn is a partner in the Labor & Employment Law Department and co-head of the Whistleblowing & Retaliation Group. He litigates employment disputes of all types before federal and state courts, arbitration tribunals (e.g., FINRA, JAMS and AAA), and before administrative agencies in New York and across the country. Lloyd’s practice ranges from litigating compensation disputes to defending whistleblower, discrimination and sexual harassment claims. Although he represents employers in a wide range of industries, including law, insurance, health care, consulting, media, education and technology, he focuses a substantial portion of his practice on the financial services sector. He has tried to final verdict or arbitration award substantial disputes in this area.

Due to Lloyd’s litigation experience, clients regularly turn to him for advice regarding the full range of employment matters, including terminations, whistleblower policy and procedure, reductions in force, employment agreements, and employment policies. For example, in the wake of the financial crisis, he has counseled a number of firms through reductions in force and related bonus and deferred compensation disputes. Lloyd has also been retained to conduct internal investigations of allegations of workplace misconduct, including claims leveled against senior executives.

Lloyd has represented global businesses in matters involving Sarbanes-Oxley and Dodd-Frank whistleblower claims. He has taken an active role in the American Bar Association on these issues, currently serving as Co-Chair of the Whistleblower subcommittee of the ABA Employee Rights and Responsibilities Committee. Lloyd has spoken on whistleblowing topics before a numerous organizations, including the American Bar Association, ALI-ABA, Association of the Bar of the City of New York, and New York University School of Law. He has testified twice before Congressional subcommittees regarding whistleblower legislation and has also published blog postings, articles and client alerts on a variety of topics in this area, including the Dodd-Frank Act’s whistleblower provisions. Lloyd is a co-editor of Proskauer’s Whistleblower Defense Blog, and he has been widely quoted by on whistleblower topics by a number of publications, including the New York Times, the Wall Street Journal, the National Law Journal and Law 360.

Lloyd has also become active in the International Bar Association, presenting on a variety of subjects, including: the #MeToo movement, the COVID-19 pandemic and employment law, and cross-border harmonization of employment provisions in transactions. Lloyd also hosts a quarterly roundtable discussion among financial services industry in-house employment lawyers. He has also published articles and given speeches on a variety of other employment-law topics, including non-solicitation provisions, FINRA arbitration rules, cross-border discovery, e-discovery, and the use of experts.