As we noted in a November 2014 bulletin, the U.S. Securities and
Exchange Commission ("SEC") is taking an increasingly
aggressive approach towards agreements which are seen to
potentially constrain whistleblowers from coming forward. This
SEC's rigorous enforcement was made all the more clear when it
issued an April 2015 cease-and-desist order ("Order") and
levied a related US$130,000 fine against KBR, Inc.
This recent SEC Order highlights the risks associated with what
are arguably common approaches which many listed companies
implement. In particular, KBR used a form of confidentiality
statement as part of its internal investigations which proved to be
Prior to asking them questions, KBR investigators required
witnesses to sign a pre-interview statement which said that: 1) the
contents of the interview could not be discussed with others
without the specific advance authorization of the company's
general counsel, and 2) unauthorized disclosure could be grounds
for discipline, up to and including termination for cause.
This approach was, said the SEC, a breach of rules which
prohibit any actions (even if only via an agreement) which impede a
person from reporting securities law violations. The language in
the investigator's required statement was held to undermine the
stated legal objective of encouraging reporting to the SEC.
The Order was issued despite the fact that SEC was unable to
point to any instances where either: 1) a KBR employee was in fact
prevented from directly communicating with SEC staff about
potential violations, or 2) the company took action to enforce the
agreement or otherwise prevent such communications. In other words,
the punishment emerged solely because of the actual or perceived
chill which the agreement created.
This development reinforces the prominence which whistleblower
protections now enjoy in contemporary workplaces. Even in cases
where no actual harm is done, a listed company can face a six
figure fine for merely creating the perception of intimidation.
While the SEC's approach is no doubt well intentioned, the
practical implications are rather surprising. The Order therefore
highlights the need for careful review of corporate approaches to
complaints, investigations, protections afforded to complainants,
and related employment issues.
The foregoing provides only an overview and does not
constitute legal advice. Readers are cautioned against making any
decisions based on this material alone. Rather, specific legal
advice should be obtained.
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