Download This PaperSilencing Whistleblowers by Contract
American Business Law Journal, Summer 2018
Baruch College Zicklin School of Business Research Paper No. 2018-01-05
53 Pages Posted: 20 Sep 2017 Last revised: 31 May 2018
Abstract
In 2015, the corporate world was jolted as the Securities and Exchange Commission brought forth the first of a series of enforcement actions against employer-mandated confidentiality agreements to silence would-be whistleblowers. KBR Inc. (“KBR”) was the first to incur SEC sanctions for contractually restricting its employees from becoming whistleblowers by requiring them to seek internal approval before making any external disclosures. Contractual restrictions on SEC whistleblowing are made unlawful by Dodd-Frank’s Rule 21F-17, which bars any actions taken to impede potential whistleblowers from reporting wrongdoing to the SEC. Lying dormant until the KBR action, Rule 21F-17 now provides the SEC with an active enforcement mechanism through which the agency regularly penalizes employers for imposing similar restrictions. Although it is now clear from a regulatory standpoint that such confidentiality agreements violate the law, Rule 21F-17 is void of any guidance or explanation as to a much thornier question — whether employers may lawfully restrict their employees from turning over to the SEC internal, confidential documents that support their whistleblowing disclosures. Case law interpreting Rule 21F-17 is similarly lacking. While incorporating the results of a request made by the author under the Freedom of Information Act (“FOIA”) pertaining to the Dodd-Frank whistleblower submission process and frequency of use, this Article is the first scholarly attempt to fill this void in the law. By integrating law from related legal doctrines, including contract law, employment law, and False Claims Act case law, this Article proposes regulatory amendments to Rule 21F-17 that balance the employer’s concerns of safeguarding confidential documents with the whistleblower’s need for providing documentary support of their claims and in furtherance of public policy. Such clarifications to the law will not only allow the SEC and future courts to point to a clear mechanism to determine the lawfulness of such transmissions, but will, most importantly, provide advance guidance to whistleblowers as to the boundaries of relying on documentary support in their revelations of wrongdoing.
Keywords: Whistleblowing, Securities Law, SEC, Dodd Frank, Confidentiality Agreements, Non-Disclosure Agreements, NDAs
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Jennifer M. Pacella (Contact Author)
Indiana University, Kelley School of Business ( email )
1309 East Tenth Street
Bloomington, IN 47405
United States