Companies should review their employee confidentiality agreements and investigation procedures to avoid running afoul of the SEC’s ever-watchful eye, according to a new enforcement action announced today. The order entered in In re: KBR, Inc. resolved the first case against a company for using a confidentiality agreement to potentially silence whistleblowers in violation of Dodd-Frank. Rule 21F-17, enacted under the Dodd-Frank Act, prohibits actions impeding whistleblowers from communicating with the SEC about potential securities law violations. In internal investigations, Houston-based KBR, Inc. asked interviewed employees to sign a confidentiality statement prohibiting them from discussing the interview with anyone without prior authorization by KBR’s legal department, or face company discipline that could include termination. KBR had used this statement prior to the enactment of Dodd-Frank, but continued using it after Rule 21F-17 was enacted. Continued use of the statement violated Rule 21F-17, according to the SEC, and KBR was required to pay a $130,000 penalty, change its confidentiality statement, and inform prior interviewees that they could contact federal enforcement agencies without company retaliation.

Within the order is the following language that KBR agreed to include, which is useful guidance on how companies should amend similar confidentiality statements and procedures:
Nothing in this Confidentiality Statement prohibits me from reporting possible violations of federal law or regulation to any governmental agency or entity, including but not limited to the Department of Justice, the Securities and Exchange Commission, the Congress, and any agency Inspector General, or making other disclosures that are protected under the whistleblower provisions of federal law or regulation. I do not need the prior authorization of the Law Department to make any such reports or disclosures and I am not required to notify the company that I have made such reports or disclosures.
The order and SEC press release can be found here.

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