Limits on the reach of confidentiality clauses in settlements

A frequent issue in negotiating a settlement agreement is confidentiality. Once an employer makes a decision to pay for a settlement, that employer typically wants to get as much as it can for its payment. It wants to restrict the employee or former employee from saying or disclosing things that could be embarrassing or costly for that employer.

Hopefully, the issue is addressed early in the negotiations. Otherwise, the employer's counsel could wait until all the monetary terms are agreed upon, and then roll out all the conditions and restrictions that the employer would like to have. What are the odds that the employee would walk away from the agreed upon payment just to preserve a right of free speech for topics related to prior employment? Some employees who had the courage to make a legal complaint care enough about the freedoms of speech, petition and association to refuse restrictions on future disclosures. In other situations, the timing and pace of negotiations may prevent exchanges of the full text of a settlement agreement.

The Supreme Court has made clear that people can voluntarily give up their constitutional rights as part of a contract. D.H. Overmyer v. Frick Co., 405 U.S. 174 (1972) (approving a waiver of due process rights as part of a commercial cognovit note). Many factors can contribute to a determination about whether a particular waiver is valid, but in the context of an agreement that settles pending litigation, most courts will enforce the agreement even if it contains a waiver of constitutional free speech rights.

Even when there is no agreement, but a court-imposed protective order to facilitate discovery, the Supreme Court will enforce a restriction on free speech when that restriction serves the purpose of conducting or settling litigation. Seattle Times Co. v. Rhinehart, 467 U.S. 20 (1984).

However, a number of whistleblower and other statutory protections limit an employee's ability to waive a right to make protected disclosures. That is the essence of “protected activity.” The law “protects” certain rights to further the public interest. This issue came to the forefront when nuclear power companies offered whistleblowers large settlements in exchange for an agreement that the whistleblower would not make safety disclosures to the Nuclear Regulatory Commission (NRC). The idea that nuclear plants would be constructed and operated with dangers hidden by “hush money” agreements was too much to bear. Macktal v. Secretary of Labor, 923 F.2d 1150, 1155-1156 (5th Cir. 1991). Thereafter, the Department of Labor ordered that all whistleblower settlements must be reviewed by the Department and those that restrain “protected activity” would not be approved.

The federal Equal Employment Opportunity Commission (EEOC) has a similar policy that prohibits enforcement of agreements that restrain employees from filing or participating in charges of discrimination. The policy states:

Agreements that attempt to bar individuals from filing a charge or assisting in a Commission investigation run afoul of the anti-retaliation provisions because they impose a penalty upon those who are entitled to engage in protected activity under one or more of the statutes enforced by the Commission. By their very existence, such agreements have a chilling effect on the willingness and ability of individuals to come forward with information that may be of critical import to the Commission as it seeks to advance the public interest in the elimination of unlawful employment discrimination.

Employees can still agree to a settlement that gives up their right to receive monetary awards, but they cannot give up their right to file a complaint or to provide information to the EEOC.

Under the National Labor Relations Act (NLRA), the nature of what is “protected activity” is different than it is under other whistleblower laws. The NLRA protects the right of private sector employees to organize unions, and also to engage in other “concerted activities” for their mutual aid and protection. While disclosures to the NLRB are also protected, the main focus of the NLRA is to protect the right of employees to communicate with each other about how the boss is treating them, and how they can work together to improve their lot. For example, under the NLRA, it is unlawful for a covered employer to bar employees from sharing information about their compensation or treatment. Thus, a settlement agreement cannot restrain employees from sharing this same information with each other.

Some courts have also held that the public has a right to know about settlements that touch on the public interest. “There is a strong public interest in disclosure.” Cusack v. Bank United of Texas, 159 F.3d 1040 (7th Cir. 1998). See Public Courts vesus Private Justice: It's Time to Let Some SunShine in on Alternative Dispute Resolution by Laurie Kratky Dore (Chicago-Kent Law Review, Vol 81:463 2006).

In settling federal court matters with federal agencies, the Department of Justice has adopted a regulation setting out a general policy against confidentiality clauses. 28 CFR § 50.23. The policy reflects the government's obligation to account to its taxpayers for how their funds are spent. The regulation permits some exceptions, such as in matters involving national security, and in protecting personal information protected by the Privacy Act. However, this policy will not apply in administrative matters involving other federal agencies.

For federal employees, Congress created new limits on confidentiality agreements through Section 104(b) of the Whistleblower Protection Enhancement Act (WPEA), codified at 5 U.S.C. § 2302(b)(13). All new non-disclosure agreements (NDAs) with any federal agency must now contain the following notice:

These provisions are consistent with and do not supersede, conflict with, or otherwise alter the employee obligations, rights, or liabilities created by existing statute or Executive order relating to (1) classified information, (2) communications to Congress, (3) the reporting to an Inspector General of a violation of any law, rule, or regulation, or mismanagement, a gross waste of funds, an abuse of authority, or a substantial and specific danger to public health or safety, or (4) any other whistleblower protection. The definitions, requirements, obligations, rights, sanctions, and liabilities created by controlling Executive orders and statutory provisions are incorporated into this agreement and are controlling.

Federal agencies are now prohibited from enforcing any NDA, unless it contains the new notice. This effectively bars federal agencies from enforcing old NDAs that sought to restrain others from making disclosures to Congress, Inspectors General, or to anyone else authorized to receive other protected disclosures.

However, what is an employee to do if a federal agency seeks to violate this new law with a contractual term that bars the employee from making disclosures about perceived violations of law? While the agency is barred from enforcing that restraint, what is to keep the agency from attempting to discipline an employee from violating the NDA? If the agency chooses to impose serious discipline for the violation, the employee could appeal to the Merit Systems Protection Board (MSPB) (within 30 days of the unlawful discipline). Whatever the degree of punishment, the employee could go to the Office of Special Counsel (OSC) to complain about the violation of the WPEA. However, the OSC has discretion about which cases it will take. The extent to which federal employees have an inalienable right to free speech remains to be tested. The courage and determination of the employees to stand up for their rights will be the first test. Another test is whether the decision makers will value free speech as much as they value disposing of cases through a settlement.
By Richard R. Renner

Troubling Issues in Settlement Negotiations

Two troubling issues arise when federal government agencies are negotiating settlements of EEO and/or MSPB cases:

The first arises when an agency demands, as a condition of the agency entering into a settlement with the employee, that the employee resign or retire from the agency’s employment.  The second and related issue arises when the agency demands as a condition of settlement that the employee or former employee never apply for employment with that agency ever again or, in some more extreme cases (which are more rare), never apply for employment with the federal government.  (A third issue with respect to settlement agreements arises from the content of confidentiality clauses and the matter of what an employee can be prohibited from disclosing; however that is a subject for a future blog.)

Both of these demands by agencies can be considered as per se reprisal because they can be seen to arise from participation in protected activity; however, whether or not these demands actually constitute reprisal, the employee to whom the demands are presented will consider them as reprisal and/or evidence of the agency’s bad faith.  When an agency makes one or both of these requirements a condition of settlement, it clearly makes resolution more difficult.

With respect to the first issue - requiring the employee to resign or retire as a condition of settlement - in our experience the matter revolves around money.  If the employee is eligible to retire, many times the agency can sweeten the deal by giving the employee a retroactive promotion to give the employee a higher “high three.”  This is legal as long as the agency makes the required contributions to the OPM retirement fund.  If the employee is not eligible to retire, then a requirement that he/she resign usually is acceptable only if the agency is willing to pay the employee an additional sum of money.

With respect to the second issue, demanding that the employee never apply for employment with the sub-agency or to the federal agency as a whole (such as DOD or HHS) is probably over-reaching by the agency.  However, a narrowly drawn clause which limits where the employee cannot apply - for example, to the organization for which the employee works or did work - may be acceptable to both parties.

Written by June Kalijarvi

Sleeping on the Job? Wake Me Up!

Sidney Riddle worked for the Hubbell Lighting Company for more than two years as a manufacturing engineer.  He was diagnosed with fibromyalgia, and told the company. Because of his condition, Riddle began sleeping poorly, grew tired at work, and on one or two occasions fell asleep at his workstation.

In response, the company advised Riddle that he would be allowed to call in and take unscheduled leave any day that he felt too tired to work.  Moreover, the company instructed Riddle that if he had flare ups of sleep deprivation that caused him to feel sleepy at work, he should notify his supervisor and would then be allowed to take unscheduled leave to go home. Riddle responded by suggesting that if he should fall asleep, the boss should wake him up so that he could get back to work. 

The very next day, Riddle fell asleep at his desk.  He was sent home and suspended. Three days later Hubbell fired him.

Riddle sued under the Americans with Disabilities Act (ADA), alleging that he could ably perform the duties of his position if, when he fell asleep on the job, someone woke him up.  He alleged that waking him up was a reasonable accommodation under the ADA. In the suit Riddle sought reinstatement to his former position, back pay, front pay, benefits, $300,000 in damages for emotional distress and humiliation, interest, costs, and attorney fees.

To establish a prima facie case of failure to accommodate under the ADA, a plaintiff must show that he is disabled within the meaning of the statute, that his employer had notice of his disability, and that he can perform the essential functions of his position with reasonable accommodation.  This makes him a “qualified individual with a disability.”  To win, he must then show that his employer refused to make such an accommodation. 

Hubbell moved to dismiss the case, arguing that being required to wake up an employee is not a reasonable accommodation.   But the court found that it was too premature to decide such an issue in the pleading stage. That is, the court was unwilling to say that due to sleeping on the job Riddle was per se not a “qualified individual with a disability.”  Thus, the court denied Hubbell’s motion to dismiss Riddle’s ADA claim.  The case settled shortly after the court’s disposition.

This was just one district court judge’s preliminary opinion.  Since the case settled, we do not even have a finding that Hubbell violated the ADA.  When an employee is asking an employer to provide accommodations for a disability, both the employer and the employee must engage in the "interactive process," an ongoing dialog through which the employee makes known his or her limitations and requirements, and the employer considers what options it is obligated to make available and what options are feasible in the workplace.  But it is worth keeping in mind that when an employee advises his employer that he has a sleep disorder, the employer might just be required to wake him up.  

The case is Sidney Riddle v. Hubbell Lighting Co., U.S. District Court for the Western District of Virginia, Roanoke Division, July 30, 2013. 

--This blog entry was prepared by Elizabeth L. Newman, enewman@kcnlaw.com

Can Ignorance Be Bliss?

What happens to an employee who obtains a new position in his agency, only to be dismissed during his new probationary period?  In Boudreault v. Homeland Security, 2013 MSPB 91 (December 2, 2013), the Merit Systems Protection Board has recently reaffirmed that an employee who accepts a new position within the same agency must be informed if he will lose his appeal rights; if he is not informed in advance, then he will be deemed to have declined the new position.  However, the Board’s reasoning is questionable and it’s not clear that the decision will survive if it is reviewed by the U.S. Court of Appeals for the Federal Circuit.

The employee in this case was appointed to a Security Assistant position by the TSA in 2006.  In 2009, the employee applied and was accepted for the position of Federal Air Marshal, which resulted in a new probation, and he was terminated during his probationary period.  By law, probationers are not “employees” who have the right to appeal to the Board. 5 U.S.C. § 7511(a)(1)(A)(i).  The employee appealed anyway, arguing both that he wasn’t a probationary employee and that he should have been given appeal rights.

The Administrative Judge held that the employee acquired appeal rights while he was a Security Assistant in 2006-07.  The Judge also held that the agency did not inform the employee that he would lose his appeal rights when he accepted the Air Marshal position.  Because the Judge found that the employee would not have accepted the position had he known he was losing his appeal rights, she held that the employee lacked sufficient knowledge to have accepted the Air Marshal position voluntarily, and as the result he retained the appeal rights he acquired in the former position.  The Judge also held that the employee was entitled to a hearing “on the merits”.

The Administrative Judge’s decision was based on two earlier Board decisions, Exum v. Veterans Affairs, 62 M.S.P.R. 344 (1994), and Yeressian v. Army, 112 M.S.P.R. 21 (2009).  In Exum, the Board held that an agency should inform employees obtaining a new position of the effect of the change on their appeal rights, and it remanded the appeal to the judge for a determination whether the employee would have taken the position had she known she was losing those rights.  In Yeressian, the Board held that “an employee who has not knowingly consented to the loss of appeal rights in accepting another appointment with the agency is deemed not to have accepted the new appointment and to have retained the rights incident to his former appointment.” 112 M.S.P.R. at ¶ 12.

Both the employee and the Agency sought review of the Administrative Judge’s decision in this case: the employee because he didn’t believe he should have to have a hearing “on the merits” (see Thomas v. HUD, 78 M.S.P.R. 25 (1998), reversing an agency action where the agency failed to give the employee written notice and an opportunity to reply), and the agency because of a recent decision by the Federal Circuit, Carrow v. MSPB, 626 F.3d 1348 (Fed.Cir. 2010).  In Carrow, while not expressing an opinion regarding the Board’s decisions in Exum and Yeressian, the court held that they didn’t apply to an employee who was moving from one agency to another.  The court held that the statute said nothing regarding exceptions to the rule that probationers lacked appeal rights, and it refused to find one in Carrow.  The agency in this case argued that the same statute said nothing about an exception for employees moving from one position to another in the same agency, and that principle should be applied to this case as well.

In a split decision, the Board reaffirmed Exum and Yeressian and held that Carrow didn’t apply.  Accordingly, the Board affirmed the Judge’s decision to hold a hearing on the merits and remanded the case to her for that purpose. 

There are, however, serious questions about the Board’s decision.  First, as the dissent observed, what does Yeressian mean when it said that an employee who wasn’t informed that he would lose his appeal rights was “deemed not to have accepted the new appointment and to have retained the rights incident to his former appointment”?  Did the employee now hold the old position or the new one?  Was the appeal aimed at retaining the new position or the old one?  Second, again as the dissent observed, even though the court specifically declined to express an opinion about the wisdom of Exum and Yeressian, didn’t the court’s statutory analysis in Carrow mean that those decisions were not likely to be sustained?  And finally, if it was clear that the agency had failed to give the employee his rights to notice and a reply, which the Board noted results in automatic reversal, why was the Board remanding the case for a hearing “on the merits”?

Interestingly, the Board’s decision doesn’t mention an earlier Federal Circuit decision, Scharf v. Air Force, 710 F.2d 1572 (Fed.Cir. 1983).  In Scharf, the court held that an employee’s decision cannot be considered “voluntary” if it is made 1) under duress brought about by the Government; 2) under time pressure imposed by the Government; 3) the employee fails to understand the circumstances because of mental incompetence; or 4) the decision is based on agency misrepresentation or deception.  In those instances, the decision is held involuntary and is withdrawn.  In this case, the Board appears to be adding another factor – agency withholding of a significant fact that may be material to the decision.  If that is the case, it might have been easier for the Board simply to have said that, rather than creating an analysis that may not last.

Written by George Chuzi