On September 15, 2016, the federal Occupational Safety and Health Administration (OSHA) released new policy guidelines for its review of private settlement agreements presented to the agency for approval in whistleblowing actions.1
OSHA issued these guidelines based on its concern that certain confidentiality and other provisions in settlement agreements may unlawfully restrict or discourage employee activity that the government would like to protect and promote.
The OSHA guidelines extend the approach recently adopted by the U.S. Securities and Exchange Commission (SEC). As discussed in our prior Insight,2 the SEC issued an agreed cease-and-desist order on August 10, 2016 inBlueLinx Holdings, Inc., requiring the company to amend its severance agreements. In that cease-and-desist order, the SEC directed the company to remove language from its agreements that prevented employees from accepting monetary awards from the SEC for whistleblowing complaints. BlueLinx also agreed to pay a $265,000 civil penalty.
The OSHA guidelines introduce additional criteria that the agency will consider when evaluating whistleblower settlement agreements. These criteria are consistent with the SEC’s rationale in BlueLinx Holdings, Inc. The guidelines also extrapolate OSHA’s existing proscription on “gag” provisions, which prohibit, restrict, or discourage employees from participating in protected activity.3
Indeed, OSHA has now put employers on notice that it will reject settlement agreements that include the following types of language:
- Any restriction on the complainant’s ability to assist the government. For example, the agency will not permit any agreement to restrict an employee’s right to inform the government about an occupational injury or other exposure.
- Any requirement that the complainant notify the employer before contacting the government to file a complaint or otherwise discuss the employer’s prior, ongoing or future conduct. Also prohibited is a requirement that an employee “affirm that he or she has not previously provided information to the government or engaged in other protected activity, or to disclaim any knowledge that the employer has violated the law.” According to OSHA, such a limitation would discourage employees from coming forward and would therefore “compromise statutory and regulatory mechanisms.” Presumably, asking the employee to notify the employer after-the-fact—and on an entirely voluntary basis just so the employer knows that an injury or exposure has occurred—may not be prohibited. But, OSHA’s guidelines are silent on this possible language.
- Any requirement that the complainant waive his or her right to receive the full amount of any monetary award (e.g., a reward) from the government for providing information to the government. OSHA thus will not approve any agreement in which the employee must waive his or her right to an award from the SEC or must give any part of that award back to the employer.
OSHA set out language it may request the parties include where a particular agreement violates the new guidelines.
OSHA also expressed its concern about settlements that provide for liquidated damages to be paid by a breaching party. Although the agency did not explicitly ban that practice, it may exercise its discretion to reject such settlements “where the liquidated damages are clearly disproportionate to the anticipated loss” to the employer from any breach.4
Liquidated damages provisions are most commonly associated with employee breaches of confidentiality provisions in settlement and severance agreements regarding the agreement’s payment terms, and breaches of restrictive covenants such as non-competes, non-solicits and non-recruitment restrictions.
In addition, OSHA set out language it may request the parties include where a particular agreement violates the new guidelines. In that event, OSHA may ask the parties not only to remove the offending terms but also to add:
Nothing in this Agreement is intended to or shall prevent, impede or interfere with complainant’s non-waivable right, without prior notice to Respondent, to provide information to the government, participate in investigations, file a complaint, testify in proceedings regarding Respondent’s past or future conduct, or engage in any future activities protected under the whistleblower statutes administered by OSHA, or to receive and fully retain a monetary award from a government-administered whistleblower award program for providing information directly to a government agency.
Finally, because OSHA enforces more than 20 federal whistleblowing statutes—including the Sarbanes-Oxley Act—these new guidelines have a broader reach than the SEC’s earlier action since OSHA governs employers who are not publicly traded companies.
As a result, even employers who are not regulated by the SEC should now review their severance, settlement, and confidentiality agreement templates, to ensure compliance with OSHA’s new guidelines
1 U.S. Dep’t of Labor, OSHA, Memo re: New Policy Guidelines for Approving Settlement Agreements in Whistleblower Cases (Aug. 23, 2016), available at: http://www.whistleblowers.gov/memo/InterimGuidance-DeFactoGagOrderProvisions.html.
2 See Kevin E. Griffith and Earl (Chip) M. Jones III, SEC Issues Cease-and-Desist Order Against Severance Agreement Clause Limiting Whistleblowers’ Rights to Recover Bounty Awards, Littler Insight (Aug. 12, 2016).
3 “Protected activity” includes filing a complaint, participating in an agency investigation, testifying, or otherwise assisting the government.
4 U.S. Dep’t of Labor, OSHA, Memo re: New Policy Guidelines for Approving Settlement Agreements in Whistleblower Cases at 2–3 (noting additional factors that OSHA will consider in evaluating liquidated damages clauses).
Ed Ellis, Chip Jones and Kevin Griffiths