SEC Brings First-of-Its-Kind Action for Confidentiality Agreement that Discourages Whistleblowing

6 April 2015
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Key takeaways

  • Last week, the SEC announced a first-of-its-kind enforcement action against a Houston-based public company, in which the company agreed to settle allegations that certain of its confidentiality agreements, which were used for witnesses during internal investigations, could be read to threaten retaliation against employees who engage in protected whistleblowing activities, such as reporting wrongdoing to the SEC.
  • The SEC acknowledged that it knew of no instances when an employee was, in fact, prevented from communicating with the SEC, or when the company sought to enforce the confidentiality agreement or prevent whistleblowing communications, but the SEC nonetheless found the potential for such interference sufficient to bring the action.
  • Public companies and regulated entities should avoid broad confidentiality language in contracts with employees that do not contain an express carve out for reporting to governmental entities. This includes not only confidentiality agreements, but also employment agreements, Codes of Conduct, and – perhaps most significantly – separation agreements or settlements with departing employees.