Potential to Violate Whistleblower Protections in Confidentiality Agreements
The SEC recently announced its first enforcement action against a company for requiring employees to sign confidentiality agreements “with the potential to stifle the whistleblowing process.” The action, brought against KBR, Inc., alleged a violation of Exchange Act Rule 21F-17 even though the SEC was not aware of KBR having taken action to enforce it or of any KBR employee having been prevented from communicating with SEC staff. KBR required employees interviewed in connection with an internal investigation to sign a confidentiality agreement that prohibited them from discussing their interview without clearance from KBR’s law department. As part of a settlement with the SEC, KBR paid $130,000 and agreed to amend its confidentiality agreements with language that expressly permits regulatory reporting by the employee. In light of this development, public companies should review their confidentiality agreements to ensure compliance with Rule 21F-17, including by adding language that permits regulatory reporting. Read the SEC press release and the SEC order, which includes KBR’s remedial language permitting regulatory reporting at paragraph 8.