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Is the SEC Giving Whistleblowers Too Much Power?

New SEC Move to Require Companies to “Review and Amend” Employee Confidentiality Agreements to Encourage Whistleblowing is Creating a Debate

Top secret! - Young businessman with finger on his lipsThe confidentiality agreement is a widely-used tool for protecting a company’s confidential information and trade secrets. It is an excellent training tool to establish an understanding with employees that companies can suffer tremendous damage if those secrets are not protected.  Further, every employee plays a role in keeping the family jewels locked up.  Indeed, confidentiality agreements, and their cousin, (non-compete agreements), are the anchors upon which most of the trade secret cases we see are tied to.

But should those agreements allow explicit and open access to a company’s confidential information by the Securities and Exchange Commission from whistleblowers?  According to the SEC, yes.

Dodd-Frank prohibits retaliation against whistleblowers, and the rule says companies “can’t take any action to impede” whistleblowing, including enforcing a confidentiality agreement against the whistleblower.  However, the SEC is now suggesting that companies should explicitly tell employees that they can give confidential information to the SEC by saying so in their confidentiality agreements with employees.

WhistleThis move is the result of a recent settlement in the KBR engineering and construction case in which KBR was accused of using their confidentiality agreements as a tool to keep employees quiet during an internal investigation related to an SEC action.  The SEC claimed that KBR’s confidentiality agreements with their employees could be used to deter tipsters from providing information to the SEC under the whistleblower rule.  KBR settled, and the SEC, trumpeted the case in a news release, warning companies to “review and amend” employment agreements that could deter whistleblowers.  [1]

Does this go too far?  Attorneys will be enthusiastically debating this in the months to come.  The upside could be that some companies that do not even have confidentiality agreements with their employees, (a larger number of companies than you might think, by the way), may use this ruling as an incentive to finally get those agreements in place.  If that happens, the net result might just be positive.

 

[1]  “Blowing the Whistle on the SEC’s Latest Power Move”, The Wall Street Journal, By Eugene Scalia.  Monday, April 6, 2015.  Scalia, a lawyer in Washington, D.C., has represented companies in whistleblower suits.

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About Jeff Hartman

Jeff is a 30 year veteran of the corporate security, computer forensics, and eDiscovery community and a co-founder and partner at 4Discovery. 4Discovery is a leading provider of computer incident response and computer forensics services to attorneys, corporate security executives, and the information protection community.