Be Sure Confidentiality Agreements Do Not Inadvertently Violate Other Laws

Posted by Benjamin I. Fink on

The United States Security Exchange Commission (SEC) recently brought an enforcement action against a company for attempting to chill the whistle-blowing process through overly restrictive language in confidentiality agreements. A technology and engineering firm in Houston, KBR, Inc., agreed to pay $130,000 to resolve charges by the SEC that some of its confidentiality agreements included language warning employees that they could face discipline or be fired if they discussed internal investigations with outside parties without first getting approval from KBR’s legal department. The SEC contends that such a practice violates SEC Rule 21(f)-17, enacted under the Dodd-Frank Act of 2010.  The head of SEC enforcement, Andrew J. Ceresney, said in a statement “[b]y requiring its employees and former employees to sign confidentiality agreements imposing pre-notification requirements before contacting the SEC, KBR potentially discouraged employees from reporting securities violations to us.  SEC rules prohibits employers from taking measures through confidentiality, employment, severance or other type of agreements that may silence potential whistleblowers before they can reach out to the SEC.  We will vigorously enforce this provision.” This position by the SEC and the settlement reached with KBR points out that confidentiality and non-disclosure agreements for employees need to carefully balance protecting confidential information and trade secrets of the company with other requirements under the law.