SEC Enforcement Action Challenges Employers on Restrictive Confidentiality Agreements

By: Behnam Salehi

On April 1, 2015, the Securities and Exchange Commission initiated its first enforcement action, pursuant to Rule 21F-17, against an employer (KBR) for stifling protected whistleblowing through overly restrictive employee confidentiality agreements. Rule 21F-17, a whistleblower provision of the Dodd-Frank Act, prohibits employers from interfering or impeding an employee from communicating with the SEC regarding possible securities law violations.

According to the SEC, KBR conducted internal investigations into potential legal violations and unethical conduct by its employees. As part of that investigation, KBR required any interviewed employees to sign a confidentiality agreement which prohibited them from “discussing any particulars of [the] interview and the subject matter discussed during the interview, without the prior authorization of the Law Department” and that unauthorized disclosure would be “grounds for disciplinary action up to and including termination of employment.”  KBR settled the SEC action by agreeing to a $130,000 civil penalty and other remedial measures to prevent future violations of Rule 21F-17, including amendment of its confidentiality agreements to state that it does not prohibit employees from reporting possible violations to governmental entities and without the need for prior authorization.

Beyond the SEC, other governmental agencies, including the Equal Employment Opportunity Commission and the National Labor Relations Board, have taken action against employers who restrict employees from discussing ongoing investigations or contacting government entities regarding same. For employers, these recent developments highlight the need to review employee agreements and policies to ensure that its confidentiality/non-disparagement provisions do not improperly restrict its employees from engaging in protected activities.


FCC Commissioner Reiterates Need for FCC to Address TCPA Issues

SEC Enforcement Action Challenges Employers on Restrictive Confidentiality Agreements

Legalization of Medical Marijuana Presents Unique Challenges To Employers

Supreme Court Considers Whether the ADA Requires Officers to Provide Accommodations to Violent and Mentally Ill Suspects

Learn more about FMG

CGL and Business Liability

Commercial and Complex Litigation

Construction and Design Law

Financial Services and Securities

Insurance Coverage & Bad Faith

Government Law

Labor and Employment Law

Professional Liability / Errors and Omissions

Freeman Mathis & Gary, LLP
100 Galleria Parkway
Suite 1600
Atlanta, Georgia 30339-5948

Tel: 770.818.0000 / Fax: 770.937.9960

Copyright © 2016 Freeman Mathis & Gary, LLP Click here to print the article.