Companies conducting internal investigations should not require—or request—that employees enter into confidentiality agreements that might discourage whistleblowers. So says the Securities and Exchange Commission, which on April 1, 2015, announced an enforcement action against KBR, Inc. as a result of confidentiality agreements that the SEC found to violate Rule 21F-17. [1]
Promulgated by the SEC under the Dodd-Frank Act, Rule 21F-17 prevents employers from enforcing confidentiality agreements signed by whistleblowers. The SEC alleged that KBR violated this regulation by routinely asking employees to sign confidentiality statements as part of its internal investigations. KBR also included these forms in its Code of Business Conduct Investigation. The confidentiality agreements contained the following language:
I understand that in order to protect the integrity of this interview, I am prohibited from discussing any particulars regarding this interview and the subject matter discussed during the interview, without prior authorization of the Law Department. I understand that the unauthorized disclosure of information may be grounds for disciplinary action up to and including termination of employment.
While there was no evidence that KBR actually interfered with an employee reporting to the SEC or that KBR took steps to enforce any confidentiality agreement against a whistleblower, KBR chose to settle without admitting the allegations in the enforcement action. The SEC warned that “any company’s blanket prohibition against witnesses discussing the substance of the interview has a potentially chilling effect on whistleblowers’ willingness to report illegal conduct to the SEC.” [2]
KBR agreed to pay a $130,000 penalty and amended the language used in its confidentiality agreements to include the following:
Nothing in this Confidentiality Statement prohibits me from reporting possible violations of federal law or regulation to any governmental agency or entity, including but not limited to the Department of Justice, the SEC, the Congress, and any agency Inspector General, or making other disclosures that are protected under the whistleblower provisions of federal law or regulation. I do not need the prior authorization of the Company’s legal department to make any such reports or disclosures and I am not required to notify the Company that I have made such reports or disclosures. [3]
Sean McKessy, Chief of the SEC’s Office of the Whistleblower recommended that “other employers should similarly review and amend existing and historical agreements that in word or effect stop their employees from reporting potential violations to the SEC.” [4] Other federal agencies, such as the NLRB, have also issued guidance restricting employers’ ability to require confidentiality in investigations. Companies should therefore review any confidentiality and non-disparagement agreements to determine whether they comply with these regulations.
We encourage you to contact any of the following attorneys if you have questions or would like more information.
Amy Conners
White Collar Criminal and Regulatory Defense
612.349.5665
aconners@bestlaw.com
Thomas Heffelfinger
White Collar Criminal and Regulatory Defense
612.349.5657
theffelfinger@bestlaw.com
Sarah Crippen
Labor and Employment Law
612.341.9733
scrippen@bestlaw.com
Ashleigh Leitch
Labor and Employment Law
612.843.5824
aleitch@bestlaw.com
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[1] In re KBR, Inc., Exchange Act Release No. 74619 (Apr. 1, 2015), http://www.sec.gov/litigation/admin/2015/34-74619.pdf
[2] SEC Press Release 2015-54, “SEC: Companies Cannot Stifle Whistleblowers in Confidentiality Agreements,” (Apr. 1, 2015), http://www.sec.gov/news/pressrelease/2015-54.html#.VSaontzF-So.
[3] In re KBR, Inc., Exchange Act Release No. 74619.
[4] SEC Press Release 2015-54.