A recent SEC enforcement action highlights the possibility that a confidentiality provision may, in some circumstances, violate certain whistleblower protections under the federal securities laws. While companies must be attuned to these protections, there is language that companies can consider to address the SEC’s concerns.

Many employers routinely require their employees to abide by nondisclosure or confidentiality obligations, whether imposed through individual agreements or various corporate policies. An enforcement action brought by the U.S. Securities and Exchange Commission (SEC) earlier this year against KBR, Inc. (KBR) highlights the possibility that confidentiality covenants may, in some circumstances, violate certain whistleblower protections under the federal securities laws. Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) added Section 21F to the Securities Exchange Act of 1934 (Exchange Act), to encourage whistleblowers to communicate directly with the SEC and to enhance the protection of these whistleblowers. In 2011, the SEC adopted Regulation 21F (Rules 21F-1 through 21F-17) to implement Section 21F. Rule 21F-17, a cornerstone rule in this series, prohibits actions to impede individuals from communicating directly with the SEC staff about possible securities law violations. Subject to certain exceptions, this prohibition explicitly extends to enforcing or threatening to enforce a confidentiality agreement to impede such communications.  Click here to continue reading.