To Aid Whistleblowers, SEC Takes Aim at Employers’ Confidentiality Agreements

On April 1, the Securities and Exchange Commission announced its first enforcement action against a company for using restrictive language in confidentiality agreements, on the grounds that it had the potential to impede the whistleblowing process.

KBR, Inc., a Houston-based global technology and engineering firm, required its employees to sign a confidentiality agreement in the midst of its internal investigations interviews, warning that employees could face discipline or termination if they spoke of the matters outside of the interview. KBR was charged with violating the SEC’s Rule 21F-17, implemented under the Dodd-Frank Act, which prohibits companies from taking actions that impede the reporting of potential securities violations.

“SEC rules prohibit employers from taking measures through confidentiality, employment, severance, or other type of agreements that may silence potential whistleblowers before they can reach out to the SEC,” said Andrew J. Ceresney, director of the SEC’s Division of Enforcement, in an agency press release.

KBR agreed to pay $130,000 in a settlement and revised its confidentiality statement to reflect employees’ freedom to report possible securities violations without retribution. Due to the potential risk of SEC investigations and sanctions based on pre-notification or other “chilling” confidentiality requirements, employers should carefully review their own confidentiality agreements and policies to make sure the language assures employees’ right to report possible securities violations.

For more information on this subject and guidance on other issues surrounding whistleblower claims and confidentiality or other restrictive agreements, contact Nilan Johnson Lewis attorney Matthew Damon (612.305.7580 or mdamon@nilanjohnson.com).

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