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Proposed Federal Rule Says Government Contractors Cannot Prevent Employee from Reporting Fraud, Waste or Abuse

    Client Alerts
  • February 08, 2016

Over the past several years, a series of Executive Orders and federal rules have significantly changed the relationship between federal contractors and their employees. These new rules have included protections for certain employee conduct, and have added new protected employee classifications that do not apply to private employers. Last month, the General Services Administration proposed another regulation, this time prohibiting contractors from using certain restrictions in confidential information agreements with their employees.

This new Federal Acquisition Rule resulted from a provision in the 2015 omnibus government funding law that prohibits the expenditure of federal funds on any contract or grant with an entity that uses confidential information agreements that would prohibit employees from lawfully reporting waste, fraud or abuse to a government agency. Contractors’ bids would require certification of compliance with this rule. Existing federal contracts would have to be modified to include this requirement.

No sane employer would ever use a confidential information agreement that explicitly prohibits employees from reporting fraud. As with recent National Labor Relations Board cases involving similar agreements, the problem here is whether standard agreement language could be interpreted by a government agency to possibly extend to these reporting activities. For example, if the confidential information agreement contains a very broad definition of confidential business information, and states that employees will be terminated and/or sued based on any disclosure of such information, a contracting agency could conclude that an average employee would read this to prohibit fraud or abuse reports to a government agency.

As with the NLRB cases, the only way for federal contractors to avoid such claims may be through adoption of explicit disclaimers in their confidential information agreements. The agreement could state that it shall not be interpreted or applied in any manner that would prohibit an employee from making a lawful report of fraud, waste or abuse to a government agency. The GSA is accepting comments on the proposed FAR through February 22.