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SEC ruling takes aim at government contractors who attempt to silence whistleblowers

According to, during 2015 the U.S. government will pay contractors more than $286 billion dollars. While many private U.S. companies that do business with the government are honest and law-abiding in their practices, others attempt to defraud the government, and taxpayers, out of millions of dollars by overcharging for goods and services or failing to reimburse for overages.

In an effort to combat government contractor fraud and protect the financial security and integrity of the average U.S. consumer and taxpayer, several important pieces of legislation have been passed including the Dodd-Frank Act, False Claim Act and Securities and Exchange Act. These laws spell out what types of activities are and are not permissible for financial institutions and government contractors.

In cases where an employee of a company that does business with the government discovers that an employer is engaging in acts of fraud, he or she would be wise to come forward and report such abuses and illegal activities. In an effort to encourage whistle blowing actions to protect government interests, a whistleblower may file a qui tam lawsuit on behalf of the government.

In an effort to evade compliance with federal anti-corruption laws, some employers amended confidentiality agreements to include clauses baring employees who report activities of fraud internally from "discussing the 'subject matter' of their allegations with anyone, including government auditors...without 'specific authorization'." The widespread use of these intimidating employment disclosure agreements came to light in a lawsuit filed by a former employee of the government military contractor Kellogg Brown & Root or KBR.

In ruling against KBR last spring, the Securities and Exchange Commission weighed in on the matter of these so-called muzzling disclosure agreements, ruling that companies who use these types of agreements will be subject to civil and, possibly, criminal penalties. The ruling has been lauded as a major win for whistleblowers and will likely force numerous government contractors to review and amend their current disclosure agreements.

Source: The Washington Post, "SEC says confidentiality agreements may have ‘muzzled’ whistleblowers at top government contractor," Scott Higham, April 1, 2015

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