Notes On: Can I Be a Whistleblower If I Already Signed a Nondisclosure Agreement?

By Carter, Adam Augustine; Oswald, R. Scott | Labor Law Journal, Winter 2013 | Go to article overview

Notes On: Can I Be a Whistleblower If I Already Signed a Nondisclosure Agreement?


Carter, Adam Augustine, Oswald, R. Scott, Labor Law Journal


Your employer is underpaying its taxes. You discover the failure to pay taxes. You feel that you should share this failure with the Internal Revenue Service. In weighing whether to disclose to the IRS you remember that when you were hired you signed a nondisclosure and confidentiality agreement. Will disclosing your employer's violations to the IRS contravene your agreement? Will you be liable for a breach of the agreement?

Recent SEC regulations-17 C.F.R. § 240.21F-17(a)- and a decision from the Administrative Review Board- Vannoy v. Celanese Corporation-indicate that signing such an agreement does not limit the employee from becoming a whistleblower with one of the federal government's whistleblower programs.

This article will discuss an employee's ordinary duties under a nondisclosure agreement when making a disclosure to a federal whistleblower program. It will review recent regulations and decisions favorable to whistleblowers in context of prior decisions that were more oppressive to whistleblowers. Finally, it will cover best practices for a whistleblower making disclosures to a government agency.

Background

The federal government has implemented various rewards programs for individuals who come forward with information that can return money to the public coffers. For example, the IRS Whistleblower Office accepts disclosures of tax underpayment; the Securities and Exchange Commission and Commodity Futures Trading Commission have their own whistleblower offices for accepting disclosures to form the basis of enforcement actions; and perhaps the most robust of these programs is the False Claims Act, which allows individuals to file a complaint in district court on behalf of the federal government. The complaint is then submitted for the government's review to prosecute.

Nondisclosure Agreements

Employers use confidentiality or nondisclosure agreements to bar employees from using information they obtain during employment after that employment is terminated.

The initial focus of these agreements was in preventing the disclosure of trade secrets. But many employers have shifted their gaze to using these agreements to keep whistleblowers from taking their concerns to any external institution, including enforcement agencies.

Typical terms of a nondisclosure agreement purport to require an employee to:

* Keep confidential proprietary information

* Use proprietary information exclusively for permitted purposes

* Not disclose proprietary information to anybody other than the employer or its agents

* Inform the employer of any disclosures of proprietary information

Proprietary or confidential information often includes typical trade secret information, customer or patient information, or information marked proprietary or confidential by the employer.

Employees are placed in a precarious position when they have uncovered nefarious activities by their employers. Employees wonder whether the agreement bars them from disclosing the malefactions to those in a position to prosecute the violations.

Recent Regulations and Decisions

Employees can take heart that the tide of using these agreements to silence whistleblowers is turning. One strong example comes from the SEC's regulations for whistleblowers making disclosures to the Commission. Specifically, Section 240.2 IF-17 of Part 17 of the Code of Federal Regulations disallows employers from "tak[ing] any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce a confidentiality agreement(Emphasis added.) This clear statement of policy evidences the Commission's intention to protect employees where employers have attempted to box them in.

Similarly, federal district courts have reasoned that there is a strong public policy protecting employees subject to nondisclosure agreements in the False Claims Act context; specifically where these employees use particularized information for filing False Claims Act cases on behalf of the government-also called qui tarn actions. …

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