Is It Time to Switch Gears? Enforceability of Automotive Company Employee Confidentiality Restrictions

by Foley & Lardner LLP
Contact

Given the large workforces and importance of intellectual property and trade secrets in the automotive industry, automotive companies rely heavily on confidentiality provisions in employment agreements and employee handbooks. Thanks to a recent enforcement action brought by the U.S. Securities and Exchange Commission (SEC), it may be time to review and revise these confidentiality provisions.

What Happened?

As part of its regular compliance program, an employer routinely conducted internal investigations in response to allegations of potential illegal or unethical conduct. The SEC discovered that the employer conducted interviews with employees as part of the internal investigations and, in connection with the interviews, asked employees to sign form confidentiality agreements that:

(i) prohibited the employee from discussing the interview without prior authorization from the legal department; and

(ii) made it clear that unauthorized disclosures may result in disciplinary action, including termination of employment.

The SEC determined that these confidentiality agreements violated whistleblower protections under federal securities laws and required the company to revise the confidentiality agreements as part of its settlement with the SEC to make it clear that nothing in the agreements would interfere with the employees’ ability to exercise their rights under whistleblower provisions of any federal law or regulations (what we’ll call a “whistleblower carve out”).

Is This a Special Case?

Maybe, maybe not. The facts in this scenario may be distinguishable from the circumstances in which your company typically enters into confidentiality agreements. For example, requiring employees to enter into a confidentiality agreement directly in connection with an investigation following an allegation of wrongdoing may be seen as more egregious than requiring employees to enter into a form confidentiality agreement as a pre-requisite to employment. However, it is possible that the SEC or other enforcement agency could take a similar approach in more “benign” circumstances, bringing into question any confidentiality provision that could be interpreted as interfering with the employees’ ability to exercise their rights under whistleblower provisions.

Is This Relevant if My Company is Not Publicly Traded?

Most likely. The federal securities laws are not the only laws that include whistleblower protections. For example, the Affordable Care Act (ACA) includes whistleblower protections that prohibit employers from retaliating against employees for reporting alleged violations of the ACA’s coverage reforms and tax credit provisions. Because retaliation can include intimidating employees, it is possible that a confidentiality provision that does not include a whistleblower carve out could be interpreted as intimidation (especially if it is clear that the employee could be fired for violating such provision). OSHA has provided further information about the ACA (and other) whistleblower rules.

What Should We Do Next?

  • Automotive employers may want to take this opportunity to work with legal counsel to review any confidentiality provisions in their employment agreements, severance agreements, employee handbooks, and other similar material and determine whether the material could be interpreted as interfering with the employees’ ability to exercise their rights under whistleblower provisions of any applicable law or regulations.

Practical Point: Remember that certain whistleblower laws apply different standards to executives and non-executives, so it is possible that the form agreements provided to all employees will have to be amended, but the executive agreements will not.

  • If necessary, amend or clarify the materials as appropriate under the circumstances.

Practical Point: In order to ease the administrative burden, consider adopting a blanket amendment instead of amending each individual agreement (if possible). Because the modification lessens the employee’s confidentiality obligations, the employee’s consent to the modification typically is not required.

  • Decide how to communicate this change to the affected employees.

Practical Point: Consider explaining that you are simply “clarifying” the materials in response to the SEC.

View This Blog

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Foley & Lardner LLP | Attorney Advertising

Written by:

Foley & Lardner LLP
Contact
more
less

Foley & Lardner LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.