February 5, 2017 - Legislation

The Cost Of Keeping Things Quiet: Crackdown On Confidentiality Clauses Calls For Explicit Carve-Outs

In last February’s Employment Law Commentary, we discussed best practices for drafting separation agreements. Among the issues raised was a recent SEC enforcement action applying one of the Commission’s rules in a novel way to clamp down on contracts seen as chilling whistleblowing activity. In the year since we last touched this subject, the SEC has been more active than ever in enforcing Rule 21F-17, extracting substantial settlements from a number of companies for drafting contractual provisions that it construes as designed to muzzle whistleblowers.

Shortly after the SEC began this new trend, the federal Defend Trade Secrets Act went into effect. The statute largely protects proprietary secret information, but it contains a conspicuous provision immunizing whistleblowing activity. It even goes so far as to penalize employers for failing to provide notice of this immunity by denying them potentially lucrative forms of relief.

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