This article was originally published on the Compliance Kristy blog.
Imagine you’ve witnessed corporate wrongdoing. Whether by your own choice or the company’s, you’re now leaving your job. The lawyers come to you with separation paperwork and ask you to sign it.
When you read the document, you notice some strange language. Signing it requires you to:
- Agree not to provide any information about corporate wrongdoing to the SEC, DOJ, or other regulator
- Agree to pay back any severance you receive if you report corporate wrongdoing to the regulators
- Agree not to answer any questions from regulators if approached
- Agree to waive any whistleblower fees you might be entitled to if you blow the whistle to the regulators about the company
Think this is far-fetched? Think again.
Companies are running scared
Companies are running scared now, and with good reason. The U.S. regulators keep creating incentive programs to get people to tell them about corporate wrongdoing. And the benefits for doing so are big.
The new DOJ pilot program awards money to corporate whistleblowers for giving previously unknown information to the prosecutors regarding several crimes.
Last year, the SEC issued its highest ever whistleblower award – $279 million. Other regulators award bounties for information leading to plea deals and convictions, so there are many reasons corporations want to keep employees with knowledge of wrongdoing tied up from reporting.
The rise of pre-taliation
“Pre-taliation” is a term used to describe retaliation that occurs before the potential whistleblower gets anywhere near the government. It typically describes contractual arrangements creating barriers or boundaries that disincentivize the former employee from providing information to the government about corporate wrongdoing.
In response, some concerned employers drafted separation agreements with all kinds of nefarious terms meant to stop communication with prosecutors. The prosecutors noticed.
Pre-taliation actions
The SEC has been hot on the tail of public companies pulling these types of shenanigans since 2017, but companies keep switching up their pre-taliation tactics.
For example, as a prerequisite for receiving employee severance, some companies required employees to certify that they had not gone to any government official with information.
Others had standard employee agreements including confidentiality clauses stating that individuals could only respond to government inquiries if asked, as opposed to being able voluntarily go to the government themselves.
The latest? Just a few weeks ago, the SEC fined seven companies an aggregate of $3 million over employment agreements and separation releases with language meant to deter whistleblowers from coming forward.
One of the company’s standard clauses read:
I further acknowledge that I am not waiving and am not being required to waive any right that cannot be waived under law, including the right to file an administrative charge or participate in an administrative investigation or proceeding; provided, however, that I disclaim and waive any right to share or participate in any monetary award resulting from the prosecution of such charge or investigation or proceeding.
Amazingly, the underlined text is from the original clause, just in case there was any doubt about the intention.
The bigger problem
Obviously, companies want to avoid the fury of the SEC and other regulators. But the bigger problem relates to company culture. A company actively silencing potential whistleblowers and creating disincentives to report crimes to the government creates a toxic culture of secret-keeping.
If standard onboarding/employment contracts include pre-taliation clauses, employees come into the company expecting an adversarial relationship with the government.
If employees who are leaving the company are required to certify that they haven’t been in touch with regulators to get their severance, or must waive their right to whistleblower payouts if they do, that creates a fear-based experience for those leaving. And people leaving still talk to their friends inside the company.
Ultimately, pre-taliation clauses create a negative culture lacking transparency and trust.
What to do about it
Now that you know that this is an issue, it’s time to find out what’s happening at your company. After all, unless you’re following this story, it may be that in-house or external lawyers writing employment and separation agreements don’t know about the problems of pre-taliation.
Legal
Call up the Legal Department and ask to see the standard employment contracts and employee severance agreements. Check for any language about confidentiality relating to governments, government officials, or regulators. If there is such language, strike it out.
Make sure the agreements don’t mention any punitive action relating to blowing the whistle to a regulator, including clawbacks or waiver of potential bounty payments.
If you’re working for a multi-national company, check with the lawyers outside the U.S. to see if any such language is included in their employee agreements. If it’s there, the lawyers may object to removing it, saying that the actions are legal within the country itself.
If that happens, discuss the importance of culture, transparency, and the reasons to remove the language.
Human Resources
Next, talk to HR. Make sure that they are aware of pre-taliation so they don’t inadvertently say the wrong thing to employees in a whistleblower situation, especially during investigations.
Review your policies
Review your employee handbook, Code of Conduct, and any policy relating to confidentiality to make sure they don’t include language that could be considered pre-taliatory.
Third-party agreements
Check your third-party agreements and standard non-disclosure agreements (NDAs) to make sure they don’t include language precluding the third-party from proactively going to the government with information regarding potential wrongdoing.
Most NDAs and third-party agreements require confidentiality with exceptions that include responding to the government. However, you want to make sure there aren’t penalties or requirements not to go to the government directly.
Mergers and acquisitions
Update your M&A processes to include a review of employment agreements and standard separation agreements/releases to check for pre-taliation clauses. You don’t want to inherit a problem unwittingly from an acquisition target.
Speak-up campaigns
Pre-taliation is a nefarious and problematic way for companies to try to protect themselves from being the focus of a government investigation. Instead of trying to force employees not to report externally, create speak-up campaigns to encourage internal whistleblowing.
Creating a positive culture of transparency is the ultimate external whistleblowing protection. It helps avoid government scrutiny and prosecution while keeping employees comfortable, which is the most beneficial outcome of all.
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