Learn the Law Before Signing NDAs, Filing Class Actions
“I would say more, but I don’t want somebody knocking on my door and asking for $50,000 back. It’s almost like bribery; I felt that I was supposed to sign the agreement, take the money and keep all their secrets.”
-former Freddie Mac employee who worked on internal financial controls.
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I find this fascinating: Some people simply do not understand basic contractual freedoms between consenting adults. Others do not understand the concept of ethics. And, they want the free lunch, no personal responsibility, having it both ways. They want the money but not the obligations it comes with.
Sorry, that ain’t how it works.
Here’s the story: Former Freddie Mac employees, who upon departing FMC, were required to sign nondisclosure agreements (NDAs) as part of the severance package. These employees are now being requested to violate those agreements in civil — not criminal — litigation. Under the law, you cannot privately contract not to answer questions from government prosecutors and investigators in any criminal case or in a regulatory proceeding. Really smart class action lawyers try to get a criminal case going simultaneously.
But as to writing books, newspaper articles or appearing as witnesses in a civil case?
Sorry, but that is simply not how contract laws work in the US. You, as an employee, do not have to accept the money in exchange for your silence. But you did. If you feel dirty because you agreed to keep what you know to yourself in exchange for cash — well, you should feel like the dirty whore you are — you sold your silence and your soul to the highest bidder. THATS WHAT YOU WERE PAID FOR NOW SMILE FOR THE CAMERA.
Barring a court order — and I suspect its unlikely we will get one — former employees are prohibited from cooperating with the civil lawsuits against Freddie Mac.
Now, you may say that sucks, and how evil Freddie Mac is. But let’s not ignore the folks who signed on the dotted line and sold their silence. They may have regrets now, but that’s what happens when you let cash trump ethics. Like the people who knew their CDOs would blow up, as well as the buyers who knew they could not possibly afford the house they were buying. Bad decision making process, bad outcome.
At some point, we have to make adults who make scummy decisions in exchange for cash own those decisions, and take responsibility for what they did.
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Source:
Freddie Mac’s Secrecy Pacts Face Court Test
EDMUND L. ANDREWS
NYT, October 22, 2009
http://www.nytimes.com/2009/10/23/business/23mortgage.html
October 23rd, 2009 at 7:20 am
Yes, “SMILE FOR THE CAMERA” was a sleazy porn film reference.
There are all sorts of whores, some get naked, others use lawyers.
As far as I am concerned, if you take cash to do the wrong thing, you might as well be in Saving Ryans Privates
October 23rd, 2009 at 7:56 am
> BR said: At some point, we have to make adults who make scummy decisions in exchange for cash own those decisions, and take responsibility for what they did.
I agree wholeheartedly BR, but despair that our society has methodically destroyed the institutions which formerly might have upheld some ethical standards: the Church is pedophiles, the Boy Scouts are homophobes, the Police are rascist, the Mainstream Media is hopelessly biased, and of course GOVERNMENT (the sole institution left standing) is all powerful and completely corrupt. While each of us may try to maintain some ethics in our immediate circles of influence, the broader society appears not enforce responsibility on wrong-doers.
October 23rd, 2009 at 8:00 am
Banks offloading bad mortgages onto FHA at 100% of book, trillions of costs for taxpayers coming.
http://news.goldseek.com/GoldSeek/1256277780.php
October 23rd, 2009 at 8:21 am
“You, as an employee, do not have to accept the money in exchange for your silence. But you did.”–BR.
and for U$D 50 K !
“But let’s not ignore the folks who signed on the dotted line and sold their silence.”–BR.
I’m, still amazed that so many will do so much, for so little..
“we have to make adults who make scummy decisions in exchange for cash own those decisions, and take responsibility for what they did.”–BR.
Contracts in the furtherance of a Crime are Invalid, no? RICO, yet again, would seem to be applicable, yes?
Where are the Feds, on this? worse, there need not be Federal jurisdiction to start ‘peeling this Onion’, right? are there no able State Attorneys General? local DA’s?
October 23rd, 2009 at 8:28 am
I love that you feel no constraints in the language you use. I wish I dared to do that.
The person you quoted seems naive to me. He thought he was supposed to take the money. At signing time, I’m positive there was no one present to explain the alternatives. I’ll wager that it appeared to be part of the normals severance package.
Anytime an employee loses a job, if there are any lawyers in the room, they represent the employer – and they always advise signing the papers. There’s never anyone explaining his/her rights to the person being terminated.
October 23rd, 2009 at 8:43 am
You nailed it Mark W.
October 23rd, 2009 at 9:18 am
For people who live paycheck to paycheck, the decision is not so easy. They absolutely need the cash. It is nice to think that they, like us, have amassed a large enough private investment portfolio to weather such crises. But, sadly, most have not. And, the way our economy is trending, even fewer will be able to in the future.
The solution is quite easy: If plaintiffs want former employees to cooperate, the former employees will have to return the cash. In that case, the plaintiffs should step in and pay cooperating former employees for any financial losses and any legal fees incurred as a result of their cooperation.
October 23rd, 2009 at 9:18 am
“It’s almost like bribery; I felt that I was supposed to sign the agreement, take the money and keep all their secrets.”
No shit Sherlock, it was bribery and you took it.
October 23rd, 2009 at 9:34 am
” Bad decision making process, bad outcome.”
pretty much it BR-
not religious- but i always liked this line-
“the truth shall set you free”- Jesus
October 23rd, 2009 at 9:37 am
Recently had an experience similar, by signing what I didn’t think was a non-compete agreement. These documents, if any of you have never seen one, are worded so vaguely and can be interpreted so widely, that they often times don’t hold up in a civil case. Mine was worded so that any contact I had with former customers could be deemed as “material intervention”. The severance was so small, and my understanding, even after conferring with legal counsel and representatives a 2nd and 3rd time from my former company, was so little, it’s no wonder I’m in the predicament I’m in.
It really is nothing I lose sleep over, but it is a slight hinderance, and more importantly, has strained the relationship that I had with former co-workers. That’s the part I hate the most. I still would jump over the moon for many of those people, but they’ve shown themselves to be above reproach in the entire affair.
Again, nothing I lose sleep over…
October 23rd, 2009 at 9:43 am
And former employees cannot be subpoenaed to testify (and unable to take the Fifth because this isn’t about their criminal misconduct) because…
October 23rd, 2009 at 9:47 am
Assuming that those folks knew what was going on at FMC was kinda-criminal, unethical, preparation for economic catastrophe, etc. and took the money anyway then, yeah, ‘boohoo to you’, right? No. If these are the folks who realized they made a mistake, f123ed up and want to help-emphasis on ‘want’, not need to help-as in subpoenaed, then bully for them. I was telling my wife, I don’t see the names of the scummy bastards that were in leadership, planned things to happen this way even though they knew the far reaching effects, and made out like bandits anywhere on teh news. Bernie Maddof. Please. How many of those folks are the paper pushers, HR folks, junior this, assistant that, trying to make ends meet with no clue of the Muttleyness of their bosses. Man, aim the scorn accurately.
October 23rd, 2009 at 9:52 am
1
from a personal stand point:
i want this guy and all the lil bribed ants that worked at FM to open their mouths,
maybe, hopefully we can put some people in jail;
and not just w/ freddie,
the SEC too (negligence on madoff)…etc
2
from an ethical stand point:
there should be no price for silencing wrongdoing.
if u kill and u pay a witness to shut up,
u r the idiot,
not the witness that tells on u.
u r absolutely right for trade secrets
but NOT for wrongful conduct:
confidentiality/ndas should be respected UP TO
where theres is no law violation/infringement.
if u or ur firm is being charged w/ fraud,
enjoy the bs tax payer money and open ur god damn mouth.
3
unhappily or happily,
as pointed out,
$50k doesn’t shut up anyone;
had it been $5m there would be no story here.
October 23rd, 2009 at 9:53 am
@ashpelham2:
Non-compete agreements are not favored in the law and their scope and duration is limited to what is deemed reasonable, often regardless of what the agreement language says.
That’s not legal advice, just something I read on a bathroom stall once. You should, of course, consult an employment attorney if you have questions.
October 23rd, 2009 at 10:00 am
Transor: That echoes exactly what I’ve been told by my numerous parties involved. namely, my current employer, who stands behind my actions 100%, and has put that in writing.
It’s a lot of smoke getting blown in my face, which is totally different than the situation with these FMC folks.
By the way $50K is a lot of money to some people. It’s not enough to make my compromise my principles and risk possibly breaking the law and spending a while locked up, away from my family. The number would have to be infinitely higher for that kind of risk
. But there is a number…..hahhaaaa…
October 23rd, 2009 at 10:08 am
Ditto: You nailed it Mark W. I suspect that any individual who balked at signing the agreement would have receive verbal implications that to do so would not be a good idea.
Something stinks with a process where ex-employees are coerced into silence in order to withhold what they know about inappropriate activity. Just another example of how sick our culture has become.
October 23rd, 2009 at 10:10 am
People take this money every day to shut their mouths and work for the very corrupt, criminal insitutions that help hasten the country’s slide into oblivion.
October 23rd, 2009 at 10:15 am
NDA’s, non-compete clauses and the like are standard practice when you receive any form of compensation from an employer. Sure you don’t have to sign it, but that also means you’re going to be out of a job or you don’t get that stock as part of your compensation package. Your example isn’t broad enough to explain the myriad of circumstances us ‘little people’ find ourselves in when having to play by the rules of the game.
October 23rd, 2009 at 10:28 am
Well said BR but one thing:
Whatever happened to you not testifying before Congress regarding the financial crisis? Did you decide to do it? Was the invitation withdrawn. I honestly don’t know.
If you’re not part of the solution, you’re part of the problem.
October 23rd, 2009 at 10:49 am
Bravo, Barry, for supporting rule of law.
Back in 1991, I was offered 10m from Citibank for my silence. I refused. I was unemployed and living hand-to-mouth, but I had been through a very difficult year health-wise as a result of my overseas posting with Citibank and I didn’t think my silence and indemnification was only worth 10m. So I politely told Citi that “counsel was reviewing” the agreement.
In the end, I never pursued any action. But it galls me to hear these crybabies say “Waaah. I signed an agreement and now I want to talk.” Grow up. Pay your bills. And if you can’t afford it, don’t buy it.
Note: NYT story was penned by Ed Andrews. He of the delinquent mortgage and hot multi-bankrupt Argentinian second wife. I’m pretty sure he’s relatively hostile to the rule-of-law and sympathetic to the poor slobs who just *had* to sign that agreement.
Sheesh.
October 23rd, 2009 at 10:59 am
with Mark W, first off thinking something stinks and knowing something does are two entirely different stories, if you read the enron story of the 30,000 employee’s they had maybe a few hundred brought up the same issues over and over during the last 3 years of the company, every time theywere told….we know what we are doing, you don’t, now here is your dunce cap, sit in the corner and watch others get promotions and bonuses……………..some left, yet, there were hundreds that had a 20 year career on the line…………….having been in a few of these the upper echelons always are emphatic that you are and idiot, have no idea what is what and you are a fool, you are intentionally made too feel stupid, and even more stupid if you don’t shut up and go away, so here you are making 50-100k going up against billion dollar companies, vp’s making 7 figures and you got a wife and kids, it is so easy to sit on the side lines and second guess this stuff…………….when you’ve been living in the twilight zone for 2-7 years you really start too question sanity and reality and just want out at any cost, which is what the other side wants
October 23rd, 2009 at 11:10 am
“… I don’t see the names of the scummy bastards that were in leadership, planned things to happen this way even though they knew the far reaching effects, and made out like bandits anywhere on teh news.”
–andrelee40@hotmail.com @ 09:47
and, Jeff, w/this: “People take this money every day to shut their mouths and work for the very corrupt, criminal insitutions that help hasten the country’s slide into oblivion.”
it’s, really, too much like that..
~~
tawm, @ 07:56
take a peek here http://www.jbs.org/ they’ve, only, been sounding similiar alarms for ~50 years..
October 23rd, 2009 at 12:02 pm
I don’t know when these people left FMC, but it certainly makes a mockery of transparency at what was once a GSE and is now a taxpayer-owned institution. Hey, Obama? Where’s the transparency you promsed? You should put a halt to this practice. What a sick joke.
October 23rd, 2009 at 1:36 pm
Ergo as I have been saying for over a year. This is as much a cultural problem as it is an economic and political one. Maybe more so. Integrity and accountability have been out of the process. This leads to all kinds of behaviors that are in the long run bad for the majority.
October 23rd, 2009 at 2:33 pm
Even in civil litigation, it usually only takes a subpoena to bust an NDA – particularly if you have a protective order in place that limits the use of the testimony to the particular proceeding. If the parties to the NDA get twitchy, a motion to compel a deposition or trial testimony is almost always granted (conversely a motion to quash is almost always denied) – as it should be.
Agreed, however, that whining about not being able to talk to the press after taking 50k is pathetic.
October 23rd, 2009 at 3:31 pm
A defendant in a civil suit can legally pay witnesses not to testify? Doesn’t the subpoena power trump the contract?
Let’s look at the alleged facts: the company had reason to know a claim existed, and it paid certain executives large amounts not to cooperate with the plaintiff or to testify.
How is this not witness tampering?
Does it make a difference if the payment is before the lawsuit or after it started? Could a defendant doctor in a medical malpractice case go to a nurse witness and saying “here’s $50k if you don’t cooperate”?
Could this be a standard clause in every employment agreement or hire letter? Could a manufacturer prevent any employee from cooperating in a civil investigation into environmental violations, or dangerous conditions in the workplace, etc.?
October 23rd, 2009 at 3:34 pm
Or let’s make it really simple. You are backing out of your parking space at the office and accidentally bash another car. There’s one guy walking through the parking garage at the time. You tell him, “here, sign this NDA and I’ll give you $500.” Now there are no witnesses in a civil suit, and you get to drive home with a smile?
This would be legal according to Freddie Mac? You’re kidding, right?
October 23rd, 2009 at 4:29 pm
I’ll file this under: If all you have is bad choices you’ll make a bad “choice”
If they bought a luxury with this cash you’d have an ethical point Barry, but if these folks are barely hanging on…well, that’s putting the horse before the cart.
Clearly your post points out that laws with punishments are needed to restrict NDA’s / non-competes to conventional trade secrets that fall within specified norms.
And I agree with the above poster that pointed out that Government is selectively enforcing/not enforcing the law. I have a hard time understanding why a criminal investigation is not at least initiated.
My take on exit NDA’s Non-competes, never refuse to sign, say you’ll need time to read it through…you’re upset…blah…blah…blah, get the document off the premises, calm down, read carefully, line out offending items and put “non-applicable” next to them, initial each item, sign and photocopy the document, now hand the original back to the purveyor. Inform the document purveyor that you have filed a copy for safe keeping. If he/she says “no can do” ask for him/her to put that in writing. If they refuse to allow you time to read the document, make it clear that you are NOT refusing to sign, just that you are not being allowed to read the complex document. Take notes the whole time.
A great number of NDA’s & Non-compete have un-enforceable clauses, if a employer refused compensation because you were not allowed to read a document, it will at the very LEAST cause them embarrassment and may well help to establish a pattern of unethical behavior should you have cause to bring action against the employer.
I agree the whining is wimpy, but I’m surprised that you’d say that unethical behavior by the NDAs author should be morally sanctioned. Oh course, I’m one of those pathetic liberals that doesn’t think this, or sealed court cases are moral [or should be legal] when the public has a “need to know”.
October 23rd, 2009 at 5:02 pm
My question at 9:43 am was rhetorical. As rcogen also points out, a subpoena can compel testimony from a witness who is legally obligated to not cooperate by virtue of NDA.
The issue here is that the shareholders’ attorneys are complaining that former employees under NDAs are not permitted to come forward voluntarily and share what they know to help the shareholders put their case together.
So what is not explained very well in the article is that the shareholders must provide a showing to the court of the probative value of what subpoenaed witnesses will testify to in order for the court to enforce the subpoena against someone who no longer works for the company.
How does that work in practice? You’d want something like an email thread or internal memo cc’ing persons in a department, some of whom no longer work there. If those persons’ testimony will shed valuable light on the circumstances around the subject of the email or memo, then there is a good chance the court will enforce a subpoena to make them testify in a civil matter. But the defendant’s attorneys will likely seek a protective order to draw a tight circle around what former employees are allowed to testify to in light of the NDA.
The problem with the NDA is that the former employees cannot come forward on their own to help the shareholders build their case.
October 23rd, 2009 at 6:47 pm
there are times, sir, when you are exactly right. there are other times, like now, when you can’t see the forest for the trees.
regarding NDAs, there are certainly a lot of people in the situation you describe. they take the hush money. but there are many many more who take the hush money because they have little or no choice. they’re loosing their job, their income, and NEED that severance package to put food on the table and service their debt.
its blackmail … plain and simple. and it works really really well.
October 23rd, 2009 at 6:48 pm
michael
NOT taking the money when you really need it, is bravery, and makes you a hero.
That is the harder thing to do. Very few would turn it down.
People who do bad things — because they need the money — does not excuse the behavior.
Taking the hush money, no matter how badly you need it, still means that you are not a hero.
Prostitutes don’t want to have sex with strangers, they need the money.
October 23rd, 2009 at 6:48 pm
not taking the money when you really really need it to put food on your kid’s table and keep a roof over his head is out of the question.
i agree with you in theory and that theory may seem ironclad when you’re in NYC and flush with cash. but a good theory and 50¢ will leave you borrowing a buck from a friend to buy a cup of cheap coffee. there are two economies in this country. there is the one you know and are embroiled in and then there is the one for the rest of us … those who don’t do turns on CNBS or MSBNC.
not trying to beat up on you … i just really don’t think you get it. your prostitute analogy is a really good one. our gov’t has been bought and paid for. thats created a vast working class of whores and wage slaves who don’t aspire to run the world or be masters of the universe. we just want our son’s and daughter’s to be able to sleep comfortably in their beds without an empty belly. most of us will swallow a lot of pride to achieve that goal. and thats the world between the coasts. present company not excepted of course.
its one thing for me to suck it up and do without in order to take a stand for my principles. its another thing entirely to impose that shortcoming on my family. its a shame our gov’t doesn’t have that perspective … for right now we’re doing exactly that. we’re fattening up a bunch of greedy undeserving banksters and we’re stealing it from our kids, grandkids and great-grandkids. imagine a world where blackmail is a crime.
PS … caught you with dylan ratigan this morning. you made some good points. very well stated.
October 23rd, 2009 at 6:49 pm
Mike
Boy do you have the wrong guy.
I grew up lower middle class, my fathers business went belly up — first when his boss died and the firm closed,
then when he opened his own shop, and later in the 1970s recession when it closed.
We just scraped by.
I paid for undergraduate (State school, accepted elsewhere) and grad school myself , and was in deep debt for many years. There were many opportunities along the way to do the wrong thing for a quick buck — but I passed.
Aside from the fact i doubt these folks took the hush money cause there kids were starving –
I dont doubt that many of these people have needs, but if you take the cash, well then don’t complain you feel dirty — YOU ARE DIRTY!
Thats the whole point! –
October 23rd, 2009 at 7:00 pm
I think you should cut them some slack just like you’re willing to cut some slack to the bonus reapers.
Obviously many at the time did not know much that was very incriminating because it would have been worth way more than 50K. Some might be that stupid but not most.
I think a NDA is pretty standard when you get the axe and I don’t understand why, if someone was pink slipped because of non-production or non team playing (maybe because they had ethics) they should have to, on top of losing their job, walk out penniless for not signing the NDA.
And try getting a job once you’re blacklisted. There are ethics and there are lepers colonies. Give us a break Barry.
October 23rd, 2009 at 7:56 pm
NOT taking the money when you really need it, is bravery, and makes you a hero.
—————–
Barry,
You are right but I think in many cases you are holding everyone else to higher standards than you are of yourself.
For example, I could argue that your trading is like stealing from the unknowing. Your overweight in equities for short term outperformance when you think the underlying economy/stocks are crap is not very ehtical and/or moral.
You are part of the problem just like most of us are part of the problem. That’s what soceity is all about. It always takes 2 to tango.
October 23rd, 2009 at 8:04 pm
Bravo, Barry, for supporting rule of law.
————
Anyone who knows the rule of law will know that it was initially created for the “haves” to make sure the proles paid they dues.
October 23rd, 2009 at 8:48 pm
And this is different from buying or renting a Congressman? Requires a black AMEX card.
October 23rd, 2009 at 9:06 pm
I’m sorry Barry, but you are wrong about the law. He can be compelled to disclose in a civil fraud trial. It’s not even a hard case. In our legal system, uncovering fraud is more important than some bullshit NDA or your politically motivated, wall street journal style “private contract” baloney. How can you claim to know who is a “really smart class action lawyer” and who is a “whore” when you have no idea what the law is?
~~~
BR: What is a “Civil Fraud” trial?
If it is a civil action between two (non-governmental) parties, there is no compulsion. The NDA means you are not allowed to tell private parties the info, and the penalty is repayment of the severance package (AKA hush money).
If it is a criminal trial, or testimony to Congress, or any governmental action (i.e., SEC prosecution), than the NDA is not applicable. A non-criminal civil prosecution by a regulatory agency is also included, and the NDA won’t apply.
I hope this clarifies this.
October 24th, 2009 at 7:14 pm
Barry, I assume you’re talking about voluntary disclosure in the context of a civil fraud. Meaning the party under contract can’t call the civil lawyers and spill their guts.
In a civil case I have never (and I mean never) failed to break an NDA by issuing a subpoena to the party that signed it. That is compelled disclosure of a sort, but you still get the evidence.