On April 1, 2015, the Securities and Exchange Commission (SEC) announced its first enforcement action involving restrictive language in an employee confidentiality agreement that it contends has “the potential to stifle the whistleblowing process.” The enforcement action arose in the context of internal investigations in connection with which a company required employee witnesses to execute a form confidentiality agreement prohibiting them from discussing the internal investigations with outside parties without prior approval of its legal department. The agreement further stated that unauthorized disclosure “may be groundsfor disciplinary action up to and including termination of employment.” Because the internal investigations included allegations of possible securities law violations, the SEC found that the terms of the form confidentiality agreement violated Rule 21F-17 promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act).

The Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted on July 21, 2010, added Section 21F to the Exchange Act to create what is often referred to as the “Dodd-Frank Whistleblower Program.” The SEC enacted Exchange Act Rule 21F-17(a) providing that no person may take any action to impede a whistleblower from communicating directly with the SEC about a possible securities law violation, including by enforcing or threatening to enforce a confidentiality agreement.