SEC Sends Message To Employers: Confidentiality Agreements That Silence Potential Whistleblowers are Prohibited

The U.S. Securities and Exchange Commission (“SEC”) relies heavily on whistleblowers to report potential securities law violations. Insider knowledge of the circumstances and individuals involved allows the SEC to identify fraud and other potential violations much earlier than might otherwise be possible. So, when Houston-based global technology and engineering firm KBR Inc. (“KBR”) attempted to silence potential whistleblowers through employee confidentiality agreements, the SEC put its foot down.

In its first enforcement action regarding confidentiality agreements (In the Matter of KBR, Inc.), the SEC seeks to send a message to other companies regarding the “potential chilling effect” that confidentiality agreements, like KBR’s, have on would-be whistleblowers. KBR’s confidentiality agreement required employees to seek prior approval from the company’s legal department before discussing internal investigations with outside parties. Failure to do so, KBR warned, could lead to discipline, up to and including termination. But, such improperly restrictive language violates SEC’s Rule 21F-17, enacted under the Dodd-Frank Act of 2010, which states:

No person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement . . . with respect to such communications.

Indeed, such blanket provisions fly in the face of the congressional purpose underlying whistleblower protections, which is “to encourage whistleblowers to report possible violations of the securities laws by providing financial incentives, prohibiting employment-related retaliation, and providing various confidentiality guarantees.”

Without admitting or denying the SEC’s charges, KBR settled the matter for $130,000 and agreed to amend its confidentiality agreements to make clear that current and former employees will not have to fear retaliation or termination or seek approval from company lawyers before contacting the SEC. Going forward, the SEC recommends that all companies review and amend their confidentiality agreements that, in word or effect, gag whistleblowers.

For more information about your rights, and a free case evaluation, please call us at (619) 342-8000 or contact us online .



Related Posts

Class Action Suit Against SDSU

Haeggquist & Eck, LLP Title IX Clients Featured on ESPN for Class Action Suit Against SDSU

Haeggquist & Eck are proud to team up with Bailey Glasser to represent former and current SDSU athletes in their …

Read More

HAE Client “Dr. Nick” Yphantides Highlighted In Media Coverage Of Disability Discrimination Case Against San Diego County

Local and national media outlets covered our client Nick Yphantides’ case against the County of San Diego for disability discrimination, …

Read More

California Judge Rules Ballot Initiative Classifying App-Based Drivers As Independent Contractors Is Unconstitutional

Proposition 22, the controversial California ballot measure classifying app-based drivers as independent contractors, hit another roadblock on Friday after a …

Read More
Translate »