In light of the SEC’s first enforcement action against a company for impeding whistleblower activity in violation of Rule 21F-17, employers may wish to consider clarifying in their agreements, policies and practices that involve confidentiality obligations that employees may provide truthful information to the SEC or other governmental agencies concerning potential violations of law.
Rule 21F-17, adopted pursuant to the Dodd-Frank Act, provides in relevant part:
(a) 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 … with respect to such communications.
KBR, a Houston-based global technology and engineering firm, had a practice of conducting internal investigations in response to complaints regarding potential illegal or unethical conduct, which included interviewing employees (including those who had lodged a complaint). KBR required witnesses in these internal investigations to sign a confidentiality statement that included the following language:
I understand that in order to protect the integrity of this review, I am prohibited from discussing any particulars regarding this interview and the subject matter discussed during the interview, without the prior authorization of the Law Department. I understand that the unauthorized disclosure of information may be grounds for disciplinary action up to and including termination of employment.
The SEC acknowledged that it was not aware of any employee in fact being prevented from communicating directly with SEC staff, or of KBR taking any action to enforce these confidentiality statements. Nevertheless, the SEC concluded that that the language in the confidentiality statement impeded communications with the SEC staff about potential securities violations by requiring permission from KBR’s legal department or face the prospect of discipline.