SEC Takes Action on Overly Restrictive Confidentiality Agreements Affecting Whistleblowers

A recent enforcement action by the Securities and Exchange Commission (“SEC”) is the first of its kind, concerning improperly restrictive language contained in a company’s confidentiality agreements that could potentially impede whistleblower rules and protections.

The SEC charged KBR Inc. with violating Rule 21F-17 under the Dodd-Frank Act by requiring witnesses in internal investigations to sign confidentiality statements which warned of potential discipline and/or termination if they disclosed information to outside parties without the prior approval of KBR’s legal department.  As the investigations included possible securities law violations, the SEC found that such rules improperly deterred whistleblower reporting of violations to the SEC.

The SEC has stated its commitment to vigorously protecting the ability of whistleblowers to report violations.  KBR will pay a $130,000 penalty and add carve out language specific to SEC and other federal agency reporting to its confidentiality statements.  Employers should examine their existing confidentiality agreements and make necessary adjustments in light of this action.

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