Not all companies have embraced the rise of whistleblowers as a vehicle to root out fraud within their ranks. In fact, many companies have gone in the exact opposite direction, doing everything they can to discourage whistleblowers from stepping forward. One popular mechanism a growing number of companies are using to silence would-be whistleblowers are so-called “confidentiality agreements” which prevent or deter employees from reporting misconduct to the government. The Department of Defense made it clear it will no longer tolerate these anti-whistleblower provisions from the companies with which it does business.
This comes from a rule the agency past last week, which effective immediately bars it from contracting with companies that require their employees or sub-contractors to sign these types of confidentiality provisions: It reads as follows:
Government agencies are not permitted to use funds appropriated (or otherwise made available) under that or any other Act for contracts with an entity that requires employees or subcontractors of such entity seeking to report fraud, waste, or abuse to sign internal confidentiality agreements or statements prohibiting or otherwise restricting such employees or contactors from lawfully reporting such waste, fraud, or abuse to a designated investigative or law enforcement representative of a Federal department or agency authorized to receive such information.
The rule also requires government contractors going forward to affirmatively represent they do not use these types of provisions, arguably opening them up to False Claims Act liability if they do not comply.
The Department of Defense’s action here in protecting employees of government contractors seeking to say something when they see something follows a similar rule the SEC adopted as part of its Dodd-Frank whistleblower program. Rule 21F-17(a) provides “[n]o person may take 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.” As it made clear in its most recent Annual Report to Congress, the SEC has been engaged in a very active campaign “to identify and investigate practices in the use of confidentiality . . . agreements that attempt to silence employees from reporting securities violations to the Commission by threatening liability or other kinds of punishment.”
Congress has jumped on the bandwagon too in going after companies employing these kinds of anti-whistleblower confidentiality provisions. A November 2014 letter by several high ranking Congressman warned Kellogg, Brown and Root — which uses this type of whistleblower gag clause — that “the substance and potential enforcement of [its] non-disclosure agreement raises significant concerns about whether it violates the False Claims Act, whistleblower protection statutes, and the Defense Federal Acquisition Regulation Supplement.” Lesson to be learned for KBR and all other companies using these anti-whistleblower provisions (or thinking about using them): the government is not going to take it anymore.
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