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.



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