Illegal NDAs

Kohn, Kohn & Colapinto led the effort to ban “hush money” payments in federal cases involving environmental and nuclear violations and the use of NDAs to silence whistleblowers.

KKC successfully litigated the first whistleblower hush money cases, which resulted in a nationwide ban on restrictive settlements in nuclear and environmental lawsuits. As a result, settlement agreements required government approval to ensure the rights of whistleblowers to report safety issues. The firm successfully litigated these hush money cases in the FourthFifth, and Ninth Circuits.

In the late 1980s, Joe Macktal was a journeyman electrician who worked for Halliburton Brown & Root building the Comanche Peak nuclear plant. He exposed severe safety defects at the plant. Lawyers for Halliburton Brown & Root coerced Mr. Macktal into signing a settlement agreement that prohibited him from telling the Nuclear Regulatory Commission about his safety concerns. Macktal complained of the restrictions, but the company warned it would: “follow him to the ends of the earth,” and ruin him financially.

KKC’s whistleblower attorneys took on the representation of Mr. Macktal to challenge the legality of such “Hush Money” agreements. In 1988, he testified at a Senate Environmental and Public Affairs Committee hearing with oversight of the Nuclear Regulatory Commission (NRC) about the use of these restrictive settlement agreements. The NRC was forced to void these restrictive settlement agreements. Mr. ‘Macktal’s case rendered such agreements illegal under federal whistleblower law and set a national precedent for whistleblowers.

The U.S. Securities and Exchange Commission (SEC) sanctioned defense contractor KBR in April 2015 for requiring its employees to sign restrictive non-disclosure agreements. These agreements prohibited employees from reporting fraud and misconduct to appropriate regulatory authorities. Read the SEC press release.

A complaint filed by whistleblower attorneys at Kohn Kohn & Colapinto on behalf of a former KBR employee, Mr. Harry Barko, triggered an SEC investigation. Read a copy of the KKC’s February 19, 2014 complaint.

Securities and Exchange Commission’s Rule 21F-17, adopted in response to the whistleblower reward provisions found in the Dodd-Frank Act, forbids a covered employer from taking “any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation.”

While litigating against KBR, the KKC attorneys documented an entrenched practice at KBR that forced all its employees with knowledge of fraud to sign non-disclosure agreements that threatened them with termination if they chose to reveal fraud allegations to anyone outside of KBR’s legal department. KBR was forced to pay a $130,000 penalty and agreed to cease this practice. The KBR enforcement action was widely applauded and served as the springboard for the series of related enforcement actions that followed.

Related articles:

Rules for Whistleblowers: A Handbook for Doing What’s Right (Lyons Press 2023) details these protections in “Rule 32: Your Disclosures Must be Protected Under Law.”

If you believe a settlement agreement or a non-disclosure agreement you signed may be illegal and would like to know how Kohn, Kohn & Colapinto can help you with your case, please complete our Contact Form to speak with one of our whistleblower attorneys.

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