The Securities and Exchange Commission announced on April 1, 2015 that it had charged Houston-based global technology and engineering firm KBR Inc. with violations of Rule 21F-17 enacted under the Dodd-Frank Act. The first enforcement action of its kind, the SEC brought the action on the grounds that language in the company’s confidentiality agreement might have a “chilling” effect on a potential whistleblower’s proclivity to report potentially illegal conduct to the SEC.

KBR employees who participated in internal investigations and related interviews were required to sign a confidentiality statement that included language cautioning that they could face discipline, up to and including termination, if they discussed the topics of the interviews and investigations with outside parties without the KBR legal department’s prior consent and approval. The SEC determined that KBR’s confidentiality statement violated Rule 21F-17, which prohibits any imposition deterring whistleblowers from reporting possible securities law violations to the SEC, because the interviews and investigations covered by the statement could potentially involve such violations.

The SEC’s order noted that its review uncovered no instance of a KBR employee being prevented from communicating with the SEC about a potential securities law violation. However, Director of the SEC Division of Enforcement Andrew J. Ceresney said, “SEC rules prohibit employers from taking measures through…agreements that may silence potential whistleblowers before they can reach out to the SEC.” Ceresney went on to say that the SEC would “vigorously enforce” Rule 21F-17.

Other companies’ similar blanket prohibitions against discussing the substance of internal interviews and investigations will likely be found to have the same potentially chilling effect on would-be whistleblowers. KBR revised its confidentiality agreement to clarify that employees will not face termination or retribution, nor need they seek approval from company lawyers before contacting the SEC. Chief of the SEC Office of the Whistleblower Sean McKessy suggested that other companies should “similarly review and amend existing and historical agreements that in word or effect stop their employees from reporting potential violations to the SEC.”

In addition to voluntarily amending its confidentiality statement, without admitting or denying the charges, KBR agreed to cease and desist from committing any future Rule 21F-17 violations and paid a $130,000 penalty to settle the SEC’s charges.