Confidentiality agreements create challenges.

• Author: T. Barnett, Kevin
• Position: Government Contracting Insights

Federal contractors who require employees to sign confidentiality agreements--including those selling only commercial products or in small quantities--need to examine their agreements closely.

The Defense Department issued a new class deviation Nov. 14 prohibiting it from using funds from recent appropriations to contract with companies using overbroad confidentiality agreements. It implements Section 743 of the Consolidated Appropriations Act, 2016 (Pub. L. 114-113) and successor provisions carried forward into subsequent continuing resolutions, including the most recent version.

While these restrictions may not be new, the deviation's broad application and significant consequences mean that contractors should give close scrutiny to ensure all agreements with employees comply with the prohibition.

For the last two years, the government has sought to prohibit confidentiality agreements that restrict employees' ability to report fraud, waste or abuse to appropriate officials within federal agencies. The Defense Department previously issued a similar class deviation in February 2015 and the Department of Veterans Affairs issued its own class deviation in April 2015. In addition, the Federal Acquisition Regulation Council released a proposed rule Jan. 22, 2016 that, if adopted, would impose a government-wide prohibition on contracting with companies that limit the ability of employees or subcontractors to lawfully report fraud, waste and abuse to the government.

Meanwhile, other federal agencies, such as the Securities & Exchange Commission and Department of Labor, have taken steps within their own spheres of influence to crack down on agreements that, in their view, potentially stifle whistleblower activity.

The DoD's recent class deviation prohibits its agencies from using appropriated funds to contract with an entity whose confidentiality agreement prevents employees from reporting fraud, waste or abuse through the appropriate channels.

The deviation does not provide a clear explanation of what constitutes an offending agreement; instead it makes the broad statement that DoD cannot contract with an entity that requires employees or contractors of such entity seeking to report fraud, waste or abuse to sign internal confidentiality agreements or statements prohibiting or otherwise restricting such employees or contractors from lawfully reporting such waste, fraud or abuse to a designated investigative or law enforcement representative of a...