SEC urged to restrict employee nondisclosure agreements

A coalition of whistleblower lawyers and government watchdog groups Friday urged the Securities and Exchange Commission to bar companies from using overly restrictive nondisclosure agreements that discourage employees from coming forward with allegations of fraud and abuse.

The coalition of 250 organizations said the rights of employees to report wrongdoing without retaliation are under attack by many U.S. corporations. They urged the SEC, which regulates publicly traded companies, to enhance its rules governing the use of nondisclosure agreements and the scope of protections for whistleblowers.

“Given the troubling statistics on workplace retaliation, there is simply no room for grey areas when it comes to this issue,” whistleblower lawyer Jordan A. Thomas wrote to the SEC. “Even more alarming is the proliferation of private agreements to silence or otherwise limit employees’ rights to act as SEC whistleblowers with all of the incentives and protections Congress provided.”

An SEC spokesman declined to comment.

Lawyers who represent whistleblowers say they are seeing an increase in recent years in the use of overly restrictive nondisclosure agreements that prevent workers from reporting fraud, even to government investigators.

Recently, agreements criticized as overly restrictive surfaced at Kellogg Brown & Root, one of the nation’s largest defense contractors, and International Relief and Development, a nonprofit organization in Arlington County, Va. The nonprofit collected more than $1 billion in tax dollars for projects in Iraq and Afghanistan that were funded by the U.S. Agency for International Development.

The SEC is investigating the agreements at KBR, and the Special Inspector General for Afghanistan Reconstruction is examining the agreements used by IRD. Both companies have denied wrongdoing. IRD changed the wording of its agreements after they were written about in The Washington Post.

The overly restrictive nondisclosure agreements have raised concerns on Capitol Hill because federal agencies have been asking employees and contractors to sign them. Last week, Rep. Jackie Speier (D-Calif.) amended an appropriations bill to ban the use of such agreements by the Energy Department.

“Whistleblowers are an asset to the government and to the taxpayers, and they are on the front lines where they can see what’s really going on,” Speier said in an interview. “We should be encouraging them to come forward, and we should be protecting them.”

Pressure to improve whistleblower laws mounted after reports of fraud in the banking and financial-services industries that led to the Great Recession of 2007-2009. In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, which established the Office of the Whistleblower at the SEC. The law also created a bounty program at the SEC to pay whistleblowers who come forward with credible information.

Whistleblower experts say that corporations are trying to shield themselves after the Dodd-Frank law by creating rigid internal reporting rules and asking workers to sign restrictive nondisclosure agreements.

In the petition to the SEC, the lawyers and watchdog groups told the SEC that they have seen numerous examples of nondisclosure agreements that they believe run afoul of the law. The examples include provisions that prevent employees from consulting with outside lawyers and demands that workers disclose whether they have contacted the SEC or any other outside agency.

The petition asks the SEC to amend a key rule to make the use of such agreements a violation of securities law.

Scott Higham is a member of the investigations unit of The Washington Post.
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