Early in March, the Wall Street Journal reported that the Securities and Exchange Commission had begun to probe “whether companies are muzzling corporate whistleblowers” through the use of confidentiality agreements that may impede employees from disclosing corporate wrongdoing. As reported, the SEC sent letters to a number of companies asking them to turn over “every nondisclosure agreement, confidentiality agreement, severance agreement and settlement agreement they entered into with employees since Dodd-Frank went into effect, as well as documents related to corporate training on confidentiality…” The agency “also asked for ‘all documents that refer or relate to whistleblowing’ and a list of terminated employees.”
Today, the SEC announced that it had filed its first ever enforcement action challenging the use of confidentiality agreements that have“the potential to stifle the whistleblowing process.” In the SEC’s order instituting a settled administrative proceeding, the SEC acknowledged that it was not aware of any instances in which KBR actually prevented employees from communicating with the SEC about potential securities law violations. Nevertheless, the SEC asserted, the overbroad confidentiality language at issue may impede such communications, undermining federal law.
To resolve the dispute, KBR agreed to pay $130,000 into the general fund of the US Treasury and to amend its confidentiality agreements to clarify that employees have an unrestricted right to report “possible violations of federal law or regulation to any governmental agency or entity.”
I expect other federal agencies – including the Equal Employment Opportunity Commission and the Department of Labor – to follow suit.