The Securities and Exchange Commission (“SEC”) continues to take strides to protect whistleblowers.[1] On April 1, 2015 the SEC announced its first enforcement action against a company for using “improperly restrictive language” in agreements. The SEC determined language in the agreements had the potential to stifle whistleblowing in violation of the whistleblower protection provisions of the Dodd-Frank Act regulations.
Technology and engineering firm KBR, Inc. required witnesses in certain investigations interviews to sign confidentiality statements. These confidentiality statements stated that the witness could face disciplinary action, including termination, if they discussed matters of the investigation with outside parties without prior approval from KBR’s legal department. The SEC found these terms were in violation of Rule 21F-17, which forbids companies from taking any action that could interfere with a whistleblower reporting possible violations to the SEC.
Although it appears that there were no specific occurrences of KBR preventing employees from reaching out to the SEC about specific securities laws violations, the SEC determined that the company’s provisions in the confidentiality statements had the potential to deter whistleblowing. Along with a $130,000 fine, KBR Inc. has agreed to amend its confidentiality statements, and to add language to clarify to employees that they are free to report possible violations of federal law or regulations to the SEC and other federal or government agencies without any prior approval.
Employers who use such agreements should be aware of how the Dodd-Frank Act is being enforced and how to draft confidentiality agreements and other employee contracts that are compliant with the SEC’s Rules. Language should reflect that employees are free to report securities violations to the SEC or other government agencies.
Employees who have signed such agreements should be aware of language that may be in violation of the Dodd-Frank Act or SEC Rules. Employees should also be aware that regardless of language in such agreements, they can and should contact the SEC or other government agencies regarding possible securities violations without the fear of retaliation by their employer.
Francis P. Karam, Esq. P.C. currently represents one of the original whistleblowers to file a claim under the Dodd-Frank Act, and has extensive expertise in representing whistleblowers and other witnesses to corporate fraud. For more information, please contact our office.
[1] When an employee notifies the government of a wrongdoing by their employer, they are a whistleblower.