Silencing Whistleblowers by Contract

Abstract

In 2015 the corporate world was jolted as the Securities and Exchange Commission (SEC) commenced its first enforcement action against employer‐mandated confidentiality agreements to silence would‐be whistleblowers, imposing sanctions on KBR Inc. (KBR) for contractually restricting its employees from becoming whistleblowers. Lying dormant until this action, Dodd–Frank's Rule 21F‐17, which bars restrictions on SEC whistleblowing, now provides the SEC with an active enforcement mechanism through which the agency regularly penalizes noncompliant employers. Although it is now clear from a regulatory standpoint that such confidentiality agreements violate the law, Rule 21F‐17 is void of guidance or explanation as to a much thornier question—whether employers may restrict their employees from turning over to the SEC internal, confidential documents supporting their whistleblowing disclosures. While incorporating the results of a request by the author under the Freedom of Information Act pertaining to Dodd–Frank's whistleblower submission process, 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 precedent under the False Claims Act, this article proposes regulatory amendments to Rule 21F‐17 that balance the employer's concern of safeguarding confidential documents with the whistleblower's need for providing documentary support of his or her claims. Such clarifications to the law will not only provide the SEC and the courts a clear mechanism to determine the lawfulness of such transmissions, but will, most importantly, serve as advance guidance to whistleblowers as to the boundaries of relying on documentary support as they reveal wrongdoing.