Review Confidentiality Agreements For Potential Whistleblower Stifling

The Securities and Exchange Commission announced yesterday its first enforcement action against a company using alleged improperly restrictive language in confidentiality agreements with the potential to prevent the whistleblowing process.  The SEC charged a company with violating the whistleblower protections of Rule 21F-17, enacted under the Dodd-Frank Act, for requiring employees in certain internal investigation interviews to sign confidentiality statements containing language that warned that the employees could face discipline if they discussed the subject matter of the investigation with outside parties unless they obtained approval from the company’s legal department.

The charged company agreed to pay $130,000 to resolve the charges and voluntarily amend its confidentiality agreements by adding language to explicitly state that the employees were free to report possible violations to the SEC and other federal agencies.  The specific amended language approved by the SEC is as follows:

“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.”

Review any agreements containing confidentiality provisions that require employees to obtain approval from the company before disclosing information to third parties.  If the agreements are not clear that the employees are nonetheless free to contact pertinent government agencies, they potentially could lead to SEC-related issues.