Following the leadership drama at OpenAI in November and December of 2023, a number of top safety-minded employees have departed from the company in recent months, alleging cultural shifts around safety and the use of restrictive non-disparagement agreements.
Anonymous sources told Vox journalists Kelsey Piper and Sigal Samuel that few employees are willing to speak about the company publicly, partly due to offboarding agreements with non-disparagement provisions upon departure, where if you refuse to sign, you lose your vested equity earned during your employment in the company, potentially worth millions of dollars.
Piper wrote that she saw the off-boarding agreement, calling it “extremely restrictive.” She explains that it subjects former employees to nondisclosure and non-disparagement provisions, essentially forbidding them from criticizing their former employer. According to Piper, even acknowledging that the NDA exists violates it.
Former employee, Daniel Kokotajlo, who left OpenAI “due to losing confidence that it would behave responsibly around the time of AGI,” has confirmed publicly that he had to surrender what would have likely turned out to be a huge sum of money in order to quit without signing the document.
While such agreements are widespread in the tech industry, putting an employee’s already-vested equity at risk for declining or violating one is unusual. In the case of startups like OpenAI, where employee compensation heavily relies on stock options, the practice of jeopardizing already-vested equity for violating an NDA serves as a powerful incentive to ensure silence, even after leaving the company, and creates a chilling effect on employee culture.
According to Piper: “This isn’t just a confidentiality agreement (that is normal). It prohibits disparaging comments made from public information. A former employee could potentially be in violation if they told a friend that they thought OpenAI’s latest public research paper was low-quality.”
OpenAI wrote in a statement to Piper following her piece on their post-employment agreements that they “Have never canceled any current or former employee’s vested equity nor will we if people do not sign a release or nondisparagement agreement when they exit.” When Piper asked if this represented a change in policy, OpenAI replied: “This statement reflects reality.”
OpenAI CEO Sam Altman tweeted about a day after Piper’s article was published that there had been a provision in the company’s off-boarding documents about “potential equity cancellation” for departing employees, but said the company was in the process of changing that language.
The Illegality of Restrictive Agreements
Restrictive agreements are considered securities violations under SEC Rule 21(f)-17a, which prohibits companies from in any way prohibiting the ability of individuals to report potential securities violations to the SEC.
Companies use restrictive agreements to create a chilling effect in worker culture. Restrictive NDAs (in and of themselves) are considered a securities law violation — just like insider trading. Therefore, companies that engage in these illegal practices are subject to severe sanctions. Sanctions often require violators to pay hefty monetary penalties, make a commitment to fix illegal practices, and amend illegal NDA contracts, notifying all affected.
In recent months, the SEC has increased its enforcement of Rule 21(F)-17a, levying record fines against companies, including one privately held company.
Employees who have signed an illegal restrictive NDA can blow the whistle anonymously by filing a confidential and anonymous complaint with the SEC under the Dodd-Frank Act.
Instead of forcing employees who suffer under these agreements to challenge the company in court or risk a counter lawsuit, the SEC now has the right to investigate companies violating rule 21F-17(a) based on a confidential or anonymous tip filed by a whistleblower. The Defend Trade Secrets Act accommodates whistleblowers, permitting anyone to disclose a trade secret to a federal or state law enforcement or regulatory agency if they do so confidentially.
To file an anonymous complaint through the SEC Whistleblower Program, a whistleblower must be represented by an attorney. If the enforcement action associated with a whistleblower’s tip results in a sanction over $1 million, they may be eligible for a financial award of 10 to 30% of the sanction.