Locke Lord QuickStudy: OSHA Joins SEC In Scrutinizing Separation and Settlement Agreements

Locke Lord LLP
October 18, 2016
In most separation or settlement agreements with employees, the goal is to achieve finality to the separation or claim and to secure the release of any legal claims in return for certain promises.  Having paid good money to resolve any claims once and for all, an employer naturally wants to limit the potential for future grievances with that employee.  Accordingly, employers often ask employees to agree not to disclose confidential company information, not to disparage the employer, not to bring any claims, and not to accept monetary recovery in any claims or government proceedings against the employer.
For many years, several courts and government agencies have given their express or implied approval to release and waiver provisions.  Long-standing EEOC enforcement guidance recognizes that waivers of the right to recover under Title VII, the ADA, and the ADEA are “widely used” in severance agreements.  Recently, however, certain agencies have increased their scrutiny of confidentiality and recovery waiver provisions, claiming that such provisions might make employees less likely to exercise protected rights.  Significant fines have resulted, even in cases where there was no evidence of intent to harm protected rights or actual impact on employees’ exercise of those rights.  

SEC Gets Aggressive On Recovery Waivers
As a follow up to the SEC’s decisions addressing what it considered to be overbroad confidentiality provisions affecting protected disclosures to agencies, two SEC enforcement actions this summer highlighted the SEC’s stance on employee waivers regarding  monetary awards for whistleblowing.  At issue were provisions in severance agreements by which employees were allowed to provide information to government agencies or participate in their investigations, but that included a waiver of their right to recover awards for any agency complaint.  According to the SEC, employees may have been allegedly “chilled” in their communications with the SEC or other agencies due to these provisions.  In BlueLinx Holdings, Inc., the employer agreed to a cease-and-desist order requiring it to pay a $265,000 civil penalty and amend its standard severance agreements to remove the recovery restrictions provisions, and to notify prior recipients of the agreement regarding their rights to engage in whistleblower activity and to recover any resulting awards.  Notably, the severance language stipulated by the order provides that BlueLinx employees may receive an award for information provided to any government agency, not only the SEC.  In Health Net, Inc., the employer consented to an order requiring it to pay $340,000, notify 600 former employees of the order, and tell them that their severance agreements did not bar them from communicating with the SEC or receiving whistleblower awards from the SEC.  These orders had many employers reviewing their own severance or settlement agreements, considering the differences between the scope of protected recoveries under these two orders, and waiting to see if other federal agencies would follow the SEC’s lead in barring recovery waivers.

OSHA Follows Suit
On September 15, 2016, the Occupational Safety and Health Administration (OSHA) arm of the Department of Labor issued new policy guidelines that largely mirror the SEC’s views on agreements which they believe affect protected rights for whistleblowing.  OSHA, which is charged with enforcement of more than 20 federal whistleblowing laws, reviews settlement agreements between complainants and their employers.  While reviewing such agreements to determine if they are “fair, adequate, reasonable, and in the public interest,” OSHA has identified certain provisions that it feels “prohibit, restrict, or otherwise discourage a complainant from participating in protected activity” concerning matters that arose during the complainant’s employment.  The new guidelines take aim at these provisions.

Under the new guidelines, OSHA will not approve settlement agreements which it believes to  prohibit, restrict, or otherwise discourage a complainant from participating in protected activity under laws for which OSHA has enforcement authority.  In the whistleblower context, protected activity can include “filing a complaint with a government agency, participating in an investigation, testifying in proceedings, or otherwise providing information to the government.”  In addition to broad confidentiality or non-disparagement clauses that OSHA feels complainants may interpret as prohibiting them from engaging in protected activity, the guidelines list several narrower provisions that will not receive OSHA approval:
  • Restrictions on a complainant’s ability to provide information to the government, participate in investigations, file a complaint, or testify in proceedings;
  • Provisions that require that a complainant to notify his or her employer before filing a complaint or communicating with the government;
  • Provisions that ask a complainant to affirm that he or she has not previously provided information to the government or has no knowledge that  the employer has violated the law; and
  • Waivers of a complainant’s right to receive a monetary award for providing information to a government whistleblower program.

OSHA also signaled that it will not approve liquidated damages provisions that are “clearly disproportionate” to the loss an employer would suffer from the complainant’s breach, that exceed the relief provided to the complainant, or that a complainant may be unable to pay given his or her position and wages.

OSHA will require parties to remove these sorts of provisions before it approves their settlement agreements.  The addition of language such as “except as provided by law” was attacked by OSHA as being insufficient to inform employees of their rights.  OSHA may also require parties to insert a “prominently positioned” disclaimer affirming the complainant’s right to engage in protected conduct and a detailed list of what such conduct may include.  The guidelines do not suggest, however, that OSHA will follow the SEC into pursuing enforcement actions against employers whose standard agreements may contain similar provisions.  

What Comes Next?
It remains to be seen whether other agencies will issue guidelines similar to those from OSHA or take enforcement steps like the SEC.  For now, for employers with agreements subject to SEC or OSHA scrutiny, a review of form confidentiality and separation and settlement agreements should be in order. Employers may find that some revisions are needed to certain agreements.