Whistleblowers and Confidentiality Agreements

Attorneys for the plaintiff in an ongoing whistleblower lawsuit (Barko v. Halliburton Company) allege Halliburton subsidiary KBR required employees who were seeking to report fraud to sign confidentiality agreements that barred them from speaking to anyone about their allegations without prior corporate consent.

This practice, they say, violated the False Claims Act because employees were barred from speaking to anyone, including government investigators, under threat of losing their jobs and facing legal action.

KBR rejects this allegation, indicating that it uses its confidentiality agreements to keep internal investigations confidential while they are ongoing and that they have never been used to prevent anyone from testifying in a case or communicating with the government. (Russell-Kraft, 2014)

Reportedly, the Securities and Exchange Commission (SEC) has opened an investigation into the matter, although it is not commenting publicly on that matter. SEC rule 240.21F-17(a) states that “no person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement.”

The U.S. House of Representatives Committee on Oversight and Government Reform is also getting involved. Rep. Elijah Cummings, Ranking Member of the Committee, and Rep. John Tierney, Ranking Member of the Subcommittee on National Security, recently sent a letter to KBR’s President and CEO. The letter requests documents relating to the company’s treatment of potential whistleblowers seeking to report wrongdoing at the company, particularly with respect to its contracts with federal government agencies.

The letter states, in part, “The use of these confidentiality agreements could raise significant concerns if employees of federal contractors are being prohibited from disclosing allegations of waste, fraud, or abuse to government agencies, Congress, or Inspectors General. Obviously, requiring employees to clear such reports through KBR’s general counsel’s office before reporting them to the government would defeat the purpose of good government laws and whistleblower protections enacted by Congress.” (Cummings and Tierney, 2014)

There is nothing inherently wrong with confidentiality agreements; businesses use them for a variety of legitimate reasons. It is too soon to know whether KBR’s use of its confidentiality agreements in this situation will be deemed legitimate or not. However, the allegations and the subsequent sequence of events highlight just how important it is to protect the rights of potential whistleblowers and to avoid even the perception that those rights are being threatened. In light of the attention this case is bringing to confidentiality and non-disclosure agreements, now may be a good time to review the language in all such agreements.

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Cummings, Elijah E. and John F. Tierney. Letter to William P. Utt, Chairman, President, and Chief Executive Officer, KBR Inc. April 1, 2014.

[From democrats.oversight.house.gov press release]

Russell-Kraft, Stephanie. “KBR Accused of Silencing Whistleblowers.” Law360.com, February 20, 2014.