Milberg, LLP, a law firm representing whistleblowers before the SEC, applauds the Commission's recent action to invalidate confidentiality provisions that discourage reporting violations to the government.
Acting under whistleblower provisions of the Dodd–Frank Wall Street Reform and Consumer Protection Act, the SEC moved to force KBR, Inc. to remove a confidentiality provision used in its form agreements requiring employees to discuss potential legal violations with KBR's legal department first.
The SEC took the position that such common provisions violate a rule prohibiting the use of confidentiality provisions preventing employees from going directly to the SEC. In settling the matter with the SEC, KBR amended its confidentiality statement to say that nothing prohibits an employee from reporting possible violations of law to any governmental agency, and that nothing requires the employee to tell the company about going to the government. KBR also agreed to pay a civil fine of $130,000.
Milberg attorney Andrei Rado, who represents whistleblowers before the SEC, applauded the move, stating "This is great for investors and employees. Confidentiality provisions have long been used to scare employees from reporting behind-the-scenes legal violations, which has allowed wrongs to snowball into disasters that wipe out trillions in shareholder value. This sends a strong message that a new era of openness is at hand, one where whistleblowers no longer are forced to choose between doing the right thing and their livelihood."
The Dodd-Frank law provides whistleblowers with rewards, awarding them 10%-30% of any fines imposed by the SEC as a result of whistleblower information that results in a fine of $1 million or more. Whistleblowers can report directly to the SEC or can do so through an attorney. Under the whistleblower rules, a whistleblower filing through an attorney can make their submission anonymously.
The law also allows a whistleblower to file a retaliation claim against their employer. However, a split has developed among courts in applying these protections. Some have ruled that the anti-retaliation provisions only apply if the whistleblower reports to the SEC directly, so that someone fired after reporting internally was not protected. Others ruled that an employee fired for reporting internally is also covered. Mr. Rado opined that "The aims of the whistleblower legislation are completely undermined when a company contractually prevents employees from going to the SEC, and then argues in court that they were free to retaliate because the employee didn't go to the SEC. The SEC's action hopefully stops this absurdity from occurring anymore."
Milberg LLP is widely recognized as a leading class action and complex litigation firm, representing individual and institutional investors, unions, consumers, and businesses. Founded in 1965, Milberg has offices in New York and Los Angeles. The Firm has taken the lead in landmark cases that have set groundbreaking legal precedents in some of the largest and most complex cases.
Contact: Gail Leibowitz