When a Secret Shouldn’t Remain a Secret

Originally published by joe.

Companies are right to secure their confidential information and take steps to ensure that it remains confidential. But there’s one significant asterisk to that notion: an employer can’t do anything to discourage or retaliate against an employee who provides information (including confidential information) to the U.S. Securities and Exchange Commission as part of an investigation into possible securities law violations.

That proscription extends to confidentiality agreements, a point the SEC made abundantly clear in an April 1 news release announcing a $130,000 fine against a company that included language in its confidentiality agreement warning that employees “could face discipline and even be fired if they discussed the matters with outside parties” without approval from the company’s legal department. The SEC found that language “potentially discouraged employees from reporting securities violations” to the agency, and required the company to amend its confidentiality agreements.

As ProPublica recently reported, whistleblowers take enormous risks to shine the light on alleged securities violations. The SEC (and, thus, the investing public) relies on whistleblowers to give them information they might not be able to get elsewhere, and they don’t take kindly to corporate policies that attempt to hamstring them from exposing alleged wrongdoing.

Executives who suspect their employers are violating securities laws can take solace in the fact that a whistleblower is protected if he or she hands over confidential information to the SEC for the purpose of exposing illegal activities. However, because this is still potentially dangerous territory, it’s wise for a whistleblower to consult with an executive employment lawyer before going to the SEC. Your attorney – who, out of an abundance of caution, probably won’t want to see what you’re turning over to the SEC – will help ensure that you steer clear of anything that could fall outside the whistleblower exemption.

Confidentiality policies and agreements are now as commonplace as Starbucks. And they are still important policies for companies to enforce. But there are limitations, and they should never be used to hide corporate violations of law.

Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.

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