April 2, 2015

SEC Charges KBR with Violating Whistleblower Protection Rule

By the C|C Whistleblower Lawyer Team

The SEC yesterday announced its first enforcement action against a company for including improperly restrictive language in confidentiality agreements that had the potential to stifle whistleblowers.  According to the SEC, Houston-based global technology and engineering firm KBR Inc. violated Dodd-Frank Rule 21F-17 whistleblower protections by requiring witnesses in internal investigations interviews to sign confidentiality statements warning them that they could be disciplined or fired if they discussed the matters with outside parties, including the government, without the prior approval of KBR’s legal department.

The SEC found that, even though there were no apparent instances in which KBR specifically prevented employees from communicating with the SEC, any company’s blanket prohibition against witnesses discussing the substance of the interview has a potential chilling effect on the whistle-blowing process.  As Andrew J. Ceresney, Director of the SEC’s Division of Enforcement, explained “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,” and he vowed the SEC “will vigorously enforce” Dodd-Frank whistleblower protections.

KBR agreed to pay a $130,000 penalty to settle the charges and the also agreed to amend its confidentiality agreements by adding language making it clear that employees are free to report possible violations to the government without KBR approval or fear of retaliation. Sean McKessy, Chief of the SEC’s Office of the Whistleblower, said “KBR changed its agreements to make clear that its current and former employees will not have to fear termination or retribution or seek approval from company lawyers before contacting us.” He also stressed that “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.”

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