SEC is Cracking Down on Nondisclosure Agreements that Muzzle Whistleblowers

Washington, D.C. – WEBWIRE – Tuesday, December 5, 2023

Today, The Wall Street Journal published an article, “Nondisclosure Agreements Get Trickier Under New SEC Scrutiny,” outlining how the SEC has recently increased its efforts in ensuring that nondisclosure agreements do not stifle whistleblowing. The article features insights from Kohn, Kohn & Colapinto founding partner Stephen M. Kohn.

“I think that the commission’s action is having an impact, and I expect there will be more,” said Kohn. “They finally are understanding that these NDAs create a chilling effect on an entire workforce.”

In recent months, the SEC has filed a number of enforcement actions against companies for violations of SEC Rule 21F-17(a), which prohibits companies from impeding whistleblowing through restrictive non-disclosure agreements or other employee agreements. These actions include the first filed against a privately held company as well as an action with a $10 million penalty, by far the largest penalty for a Rule 21F-17(a) violation.

As part of their pro bono work, the attorneys at Kohn, Kohn & Colapinto have long been at the forefront of calling for effective enforcement of Rule 21F-17(a). During the rulemaking process for the SEC Whistleblower Program, KKC helped push for the institution of the rule when it met with the Chief of Staff for the Chairman of the SEC and explained that restrictive NDAs could undermine the program. In 2015, on behalf of its client Harry Barko, KKC urged the SEC to take action against KBR for forcing employees to sign restrictive NDAs as part of the company’s alleged “compliance” program. This resulted in the first enforcement action taken for a violation of Rule 21F-17(a).

More recently, KKC has been drawing attention to the practice of restrictive NDAs in the tech industry. In April, Bloomberg reported on whistleblower complaints filed by KKC clients detailing the use of restrictive NDAs by Big Tech companies. The Wall Street Journal article reports that KKC “compiled a list of at least six tech companies that use employment and severance agreements that might violate SEC whistleblower-protection rules.”

Kohn is available for further comment on the matter.