Whistleblowers and Confidentiality Agreements

Almost exactly a year ago Ethical Advocate posted an article about whistleblowers and confidentiality agreements. The Securities and Exchange Commission (SEC) had opened an investigation into an allegation that KBR Inc., a party to an ongoing whistleblower lawsuit (Barko v. Halliburton Company), required employees seeking to report fraud to sign confidentiality agreements that barred them from speaking to anyone about their allegations without prior corporate consent.

KBR denied that the confidentiality agreements were misused to prevent employees from testifying in a case or from communicating with government investigators, stating that such agreements were used only to protect the confidentiality of internal investigations into possible wrongdoing. It repeated those assurances on April 1, 2015 when the SEC and KBR announced a settlement of the SEC investigation. (KBR; SEC, 2015).

The SEC found no instances of KBR preventing employees from communicating with the government, but the wording of the original agreements potentially discouraged employees from reporting securities violations to the SEC, according to Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.  “SEC rules prohibit 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.”

According the SEC, KBR agreed to pay $130,000 to settle the investigation and voluntarily amended the language in its confidentiality agreements to make it clear that employees are free to report possible violations to the SEC and other federal agencies without KBR approval or fear of retaliation.

Sean McKessy, Chief of the SEC’s Office of the Whistleblower, acknowledged the wording change in KBR’s confidentiality agreement. He said “other employers should similarly review and amend existing and historical agreements that in word or effect stop their employees from reporting potential violations to the SEC.”

In its press release, KBR stated it has “always prided itself on its compliance program, designed thoroughly to investigate reports of wrongdoing, bring matters to the attention of law enforcement where appropriate, and fully cooperate with law enforcement investigations.” The company does offer its employees a number of options for reporting ethical misconduct, including an ethics hotline. As this case illustrates, however, not only is it important to have the right processes in place, it is also important to avoid the perception of restricting whistleblower’s rights.

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KBR. “KBR and SEC Resolve Questions Regarding Confidentiality Agreement.” KBR press release, April 1, 2015.

SEC. “SEC: Companies Cannot Stifle Whistleblowers in Confidentiality Agreements.” SEC press release, April 1, 2015.