SEC Makes Clear That Employee Confidentiality Agreements Cannot Stifle Whistle-Blowing

Securities and Exchange Commission (SEC) Rule 21F-17 ("the rule") (published in 2011 as part of the comprehensive whistle-blower regime mandated by the Dodd-Frank Act) prohibits any person from taking any action to impede an individual from communicating directly with the SEC regarding possible securities law violations.  

On April 1, 2015, the SEC announced its first-ever enforcement action under the rule, charging KBR Inc. with violating the rule after it required employee witnesses in internal investigations to execute confidentiality statements that contained language suggesting that they could face discipline, including termination, if they discussed the matters with outside parties without prior approval of KBR's legal department. Since the internal investigations included allegations of possible securities violations, the SEC determined that the terms at issue violated the whistle-blower protection rule and imposed a $130,000 civil penalty. The SEC imposed the