On April 1, 2015, the United States Securities and Exchange Commission brought its first enforcement action against a company for using a form employee confidentiality agreement that was interpreted as possibly limiting an employee’s ability to bring a whistleblower complaint. In its administrative action against KBR, Inc., the SEC claimed that language in the company’s confidentiality agreement “undermines the purpose of Section 21F [of the Dodd-Frank Act]… which is to ‘encourag[e] individuals to report to the Commission.’” This enforcement action fulfills a promise made by SEC Whistleblower Office Director Sean McKessy in October 2014, when he stated, “We are going to bring a case where somebody has asked an employee or forced an employee to sign a document that in order of substance means they can’t report to us.”
KBR, Inc. used its form confidentiality statement during its internal investigations, when investigators would, as a matter of course, request that each employee-witness sign the confidentiality form at the start of an interview. The form confidentiality language stated in part: “I am prohibited from discussing any particulars regarding this interview and the subject matter discussed during the interview, without the prior authorization of the Law Department” (emphasis added). Notably, the SEC recognized in its enforcement action that it was unaware of any instances in which a KBR employee was actually prevented from communicating with the SEC about a possible securities law violation. Moreover, the SEC readily conceded that it was not aware of any instances in which KBR took any action to enforce the form confidentiality statement or otherwise prevent an employee from communicating with the SEC. Rather, the SEC took the position that it need not demonstrate that KBR actually inhibited, or attempted to inhibit, a particular whistleblower complaint, because the language requiring internal company approval conflicted with Dodd-Frank’s expansive whistleblower protections.
As part of its agreement to resolve the enforcement action, KBR agreed to several remedies, including amending its form confidentiality statement with clarifying language noting that the statement (1) does not prohibit the employee from reporting possible violations of law or regulation to government agencies or law enforcement, and (2) that is it not necessary for the employee to receive permission or give notice to the company before making a whistleblower report or disclosure. This recent action signals the SEC’s aggressive approach to enforcing Dodd-Frank’s whistleblower protections. In this case, KBR was not alleged to have taken specific action to interfere with any specific whistleblower; instead, the SEC based its action on the potential chilling effect of the language in the company’s confidentiality form alone. For that reason, this case demonstrates that companies must take great care in drafting and reviewing form confidentiality agreements in the context of the SEC’s expansive and aggressive approach to safeguarding Dodd-Frank’s whistleblower protections.