United States: SEC's Attack On Confidentiality Agreements

Keeping its promise announced last year, the Securities and Exchange Commission on April 1, 2015, released a cease-and-desist order ("Order") declaring illegal a publicly traded company's use of a confidentiality agreement that prohibited employees during an internal investigation from discussing—whether inside or outside the company without legal approval—the substance of their interviews involving potentially illegal or unethical conduct by the company or its employees. The SEC also levied a $130,000.00 civil penalty against the company.

The SEC Office of the Whistleblower ("OWB") prosecutes claims against companies that violate the prohibitions against whistleblower retaliation. Going back to March 2014, the OWB has made clear its interest in assuring that employers not attempt to constrain employees and other protected individuals from reporting alleged unlawful activities.  Indeed, this interest is quite similar to the Equal Employment Opportunity Commission's declared interest in assuring, through various enforcement actions, that employees not waive their rights to file charges of discrimination with that agency.

The SEC's new Order illustrates the significant compliance risks posed by fairly commonplace confidentiality restrictions on disclosing internal matters.  The SEC could construe such restrictions as prohibiting employees from informing enforcement agencies about alleged unethical or unlawful conduct. 

Rule 21F-17(a) of the Exchange Act provides: "[n]o person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement...with respect to such communications." 

As the SEC stated in the Order, prior to the promulgation of Rule 21F-17 and continuing into the time that Rule has been in effect, the company in question—KBR, Inc., headquartered in Houston—used a form confidentiality statement as part of its internal investigations into claims of potentially illegal or unethical conduct.  KBR investigators had witnesses sign the statement at the start of an interview.  The statement provided:

Due to the sensitive nature of this review, I understand that the information discussed during this interview is confidential. I further understand that the information that I provide will be protected and remain within the confines of this review and only authorized personnel will have access to the information contained in this report. 

I understand that in order to protect the integrity of this review, I am prohibited from discussing any particulars regarding this interview and the subject matter discussed during the interview, without the specific advance authorization of [the Company's] General Counsel.

I acknowledge and agree that I understand the unauthorized disclosure of this information could cause irreparable harm to the review and reflect adversely on [Company] as a company and/or [Company] performance in the Middle East Region and therefore, I understand that the unauthorized disclosure of information may be grounds for disciplinary action up to and including termination of employment.

The SEC conceded that it was "unaware of any instances in which (i) a KBR employee was in fact prevented from communicating directly with Commission Staff about potential securities law violations, or (ii) KBR took action to enforce the form confidentiality agreement or otherwise prevent such communications." 

Nevertheless, the SEC concluded that "the language found in the form confidentiality statement impedes such communications by prohibiting employees from discussing the substance of their interview without clearance from KBR's law department under penalty of disciplinary action including termination of employment." 

Thus, concluded the SEC, "this language undermines the purpose of Section 21F Rule 21F-17(a), which is to encourage individuals to report to the Commission."  (Internal quotes omitted.)

In pursuit of this goal of identifying confidentiality policies, statements and agreements of this nature, the SEC has been seeking, from a large number of companies via formal investigation notices and document requests, every confidentiality agreement, nondisclosure agreement, settlement agreement, and severance agreement the companies entered into with employees since the Dodd–Frank Wall Street Reform and Consumer Protection Act went into effect in 2010. 

The SEC is also seeking documents related to corporate training on confidentiality, as well as all documents that refer or relate to whistleblowing such as codes of conduct and reporting policies, and lists of terminated employees. The SEC wants to point to these documents as evidence of retaliation.  In the SEC's view, these types of confidentiality and non-disclosure agreements and clauses can represent a form of systemic retaliation if they are overly broad and serve to silence would-be whistleblowers.

The compliance risk for employers created by this enforcement is that the OWB is not only going after agreements that would affirmatively prohibit these kinds of complaints. Rather, in the view of OWB, these type of agreements and clauses need to explicitly reaffirm the employees' rights to bring SEC-related complaints and disclose related information to the SEC—and to be able to do so unimpeded— in order for such agreements and clauses to pass muster.

There are at least four key areas where these issues arise:  in release agreements, which may be part of settlements of active or threatened litigation, or part of more generic severance agreements; in stand-alone confidentiality or non-disclosure agreements, which are commonly issued to employees at the commencement of their employment; in internal policies regarding complaints of unethical or unlawful practices; and in investigation protocols regarding discussions of confidentiality and the attorney-client privilege.  These agreements, policies, and protocols, then, need to be closely examined and revised appropriately to ensure that employees are under no misunderstanding that the company does not bar them from filing claims with, or disclosing pertinent information to, enforcement agencies against the employer.

The SEC's approach runs parallel to the EEOC's current approach. The EEOC has proactively attacked settlement agreements entered into between employers and employees or former employees. The EEOC has asserted in these cases that it can unilaterally challenge such agreements even without a charging party, needing only "reasonable cause" for proceeding with its challenge.

Recommendations for Employers

The following recommendations are first steps all employers should consider.

Employers are advised to review separation agreements and confidentiality agreements and clauses with an eye toward strengthening provisions preserving the employee's right to file administrative charges or lawsuits, as well as the rights to disclose certain information. The rights should apply to any government agency charged with enforcement of any law, not just employment laws.

Internal codes of conduct, policies, confidentiality statements, and certification procedures must not create an unequivocal requirement for employees to bring legal or ethical concerns to the attention of the employer prior to, or instead of, the attention of an enforcement agency.  The documents should affirmatively remind employees that they have the right to file claims and disclose information regarding the employer's business practices, not only with the SEC or OWB, but with the EEOC, the Department of Labor, or any other applicable enforcement entity.    

Internal investigation protocols should be closely scrutinized and revised to permit the legitimate application of the attorney-client privilege and confidentiality for internal investigations while concurrently permitting and advising employees of their rights to communicate with enforcement agencies (including the SEC) and the company's commitment to prohibit retaliation because of such protected conduct.

Employee training modules should be examined for statements that could be read to dissuade employees from communicating with enforcement agencies, and managers should be trained to avoid making statements to employees that impinge on those rights.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Philip M. Berkowitz
Kevin E. Griffith
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.