The Securities and Exchange Commission is serious about protecting corporate fraud whistleblowers. Since Congress passed Dodd-Frank in 2010, the SEC has continually attempted to bring more cases on behalf of and initiated by corporate fraud whistleblowers. Enforcement has been more vigorous over the years.
In February, the Wall Street Journal published an article discussing the SEC’s probe of companies’ treatment of whistleblowers. SEC Probe The SEC was reportedly looking into whether companies were attempting to stifle whistleblowing and muzzle whistleblowers through nondisclosure agreements, confidentiality agreements, employment agreements, severance agreements, and the like. Apparently, SEC officials were concerned about a corporate backlash against whistleblowers.
And now the SEC has announced its first settlement with a company accused of improperly restricting whistleblowers through restrictive employment agreements. KBR Settlement KBR, Inc. has agreed to pay $130,000 to settle claims asserted by the SEC that it required employees to sign a confidentiality agreement that could have kept them from reporting possible violations of securities laws to outside authorities. More specifically, the KBR confidentiality agreements purportedly included language warning employees that they could face discipline, including termination, if they discussed internal investigations with outside parties unless they first obtained approval from KBR’s legal department.
The pre-notification requirement in the KBR agreement, according to the SEC, is unlawful because it may have a chilling effect on employees, discouraging them from reporting securities violations to appropriate authorities. As a part of its settlement, KBR agreed to amend its confidentiality agreements to clarify that employees can report possible violations to the SEC and other federal agencies without prior KBR approval.
Along with its announcement of the KBR settlement, the SEC indicated that it has a number of other pending investigations involving companies silencing whistleblowers and that it will vigorously enforce these matters.
Although confidentiality agreements are oftentimes essential tools for companies to use in sensitive situations and in dealing with employees, those agreements must be carefully crafted so as not to run afoul of existing regulations. This is especially true in light of the SEC’s aggressive enforcement initiative.
In the matter of KBR Inc. (SEC File No. 3-16466)