Top Three Reasons to Double Check Confidentiality and Non-Disclosure Provisions

Top_secretIn an effort to protect legitimate business interests and safeguard valuable company information from competitors, employers often rely on confidentiality agreements and employee handbook policies.

However, recent government agency initiatives have directly called traditional confidentiality provisions into question because of fears these provisions may limit the right of employees to engage in legally protected activity and deter them from reporting workplace violations. Here are the top three reasons why an employer should double check its confidentiality and non-disclosure provisions:

1. SEC Initiatives

In April 2015, the Securities and Exchange Commission (SEC) brought an enforcement action against KBR, Inc. claiming that overly restrictive language in confidentiality agreements violated the Whistleblower Protection Enhancement Act of 2012, by making it less likely employees would disclose waste, fraud and abuse to the SEC.

The confidentiality language at issue covered internal investigations and prohibited employees from discussing any matter with outside parties without prior legal department approval and said employees who violated this provision could be subject to discipline and termination. The SEC believed that a blanket prohibition would discourage employees from reporting violations of security laws.

KBR settled the enforcement action and paid a $130,000 penalty. Further, it agreed to revise the agreement and make clear that employees are not required to seek legal authorization before reporting potential violations to government agencies and that they may make such reports without fear of retaliation.

2. EEOC Initiatives

Along similar lines, the Equal Employment Opportunity Commission (EEOC) recently brought an enforcement action against the CVS pharmaceutical chain claiming separation agreement forms that included strict confidentiality and nondisparagement clauses could prevent employees from discussing workplace conditions with the EEOC. In addition, the agency claimed these provisions interfered with an employee’s right to file discrimination and harassment charges and participate in or cooperate with EEOC investigations. The EEOC maintains that employees must be aware of their rights under Title VII of the Civil Rights Act to participate in investigations and file charges with the EEOC.

3. NLRB Initiatives

In March 2015, the National Labor Relations Board’s General Counsel (GC) released a report detailing recent decisions regarding employer rules and workplace policies. The Board reviewed polices and provisions it had found unlawful because such provisions violated the right of employees to engage in protected concerted activity.

In the report, the GC said the confidentiality provisions restricting employees from disclosing confidential information may be overly broad and unlawful if such provisions prevented employees from disclosing information regarding employee wages, hours, working conditions, benefits and terms of their employment. Therefore, the GC determined that the following provisions were unlawful:

  • Prohibiting discussion of customer or employee information outside of work, including phone numbers and addresses;
  • Prohibiting disclosure of proprietary or confidential information about the employer or other associates; and
  • Directing employees to discuss work matters only with co-workers who have a specific business reason to know and banning discussions of such matters in public places.

The report reasoned that these provisions and others were overbroad, vague and may be reasonably construed as prohibiting employees from sharing information about terms and conditions of their employment. However, the report said the provisions prohibiting employees from disclosing confidential business information and trade secrets (e.g. recipes, preparation techniques, marketing plans and strategies, financial records) and information belonging to business partners, vendors or customers were indeed lawful.

Best Practices for Employers

In light of these developments, an employer seeking to protect its confidential information and trade secrets, as well as its business practices and activities, should do the following:

• Review all confidentiality provisions in employment agreements, employee handbooks, workplace policies, releases and severance agreements. Consider which documents will need to be updated in light of recent action with respect to confidentiality.
• Determine what information the employer is really seeking to protect and ensure that confidentiality provisions are both specific and narrowly drafted.
• Carve out any rights employees are entitled to assert, such as the right under the NLRA to engage in protected concerted activity or the right under whistleblower laws to report company misconduct. Make sure the language is bold and prominently placed.
• Avoid overly broad prohibitions on employee speech which may have a chilling effect on employee rights.

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