Companies take heed: the Defense Department is close to finalizing a rule that would allow it to withhold funds from contractors that use confidentiality agreements to deter employee whistle-blowing.
The rulemaking would implement language in the 2015 Appropriations Act to prevent the 1,000 or so companies that supply goods and services to the Defense Department from stifling whistle-blowers through confidentiality agreements or other types of employment pacts.
Under the rule proposal, defense contractors also would have to certify that they don’t require the signing of such agreements. The contractors additionally must inform employees that such restrictions in existing confidentiality agreements no longer are effective.
The rulemaking is likely to proceed under the Trump Administration, because most people agree that encouraging whistle-blowers to report fraud, waste and abuse is good public policy.
The department already is following the policy, as stated in a Nov. 14 memorandum from the Undersecretary of Defense for Acquisition, Technology and Logistics declaring a class deviation. It issued a similar memo last year. The rulemaking would formalize the practice.
The department is but one of several agencies that are closely scrutinizing employment agreements to ensure they don't “gag” informants. The Environmental Protection Agency and the General Services Administration have similar policies, while the Occupational Safety and Health Administration recently amended its whistle-blower investigations manual to clarify that it won’t approve settlements of whistle-blower cases that include provisions requiring workers to forgo their right to a reward from the Securities and Exchange Commission or other regulators.
In the meantime, the SEC continues to monitor such agreements as part of its whistle-blower program.
The DOD’s recent memo is yet another reminder for companies to ensure their employment agreements clarify that employees are free to communicate with the SEC and other federal agencies over possible wrongdoing.
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