Banning Restrictive Non-Disclosure Agreements

Kohn, Kohn & Colapinto represented Joseph J. Macktal, a journeyman electrician, who, in the 1980s, changed whistleblower law forever. Macktal raised safety concerns while working for Halliburton Brown & Root during the construction of the Comanche Peak nuclear plant near Dallas, Texas. Macktal was fired in retaliation for raising safety concerns, and after filing a whistleblower suit was pressured by the company into filing a signing a settlement agreement that contained a highly restrictive non-disclosure agreement (NDA).

Following this initial result to his whistleblowing, Macktal then hired Kohn, Kohn & Colapinto to represent him. Macktal willfully violated his NDA and publicly exposed the money-for-silence practices at Comanche Peak. In the subsequent seven-year legal battle, the attorneys of Kohn, Kohn & Colapinto argued for the public interest in banning restrictive non-disclosure agreements.

In response to Macktal’s whistleblowing, and following pressure from Congress, the Nuclear Regulation Commission (NRC) issued an order to every nuclear power plant in the United States, requiring them to produce all such restrictive NDAs and inform all employees who signed such agreements that they were void. After that, the NRC approved a formal rule that restrictive NDAs were grounds for fines, penalties, and theoretically the revocation or suspension of a license to operate a nuclear plant.

Subsequently, the Department of Labor fully voided Macktal’s previous settlement agreement and permitted Macktal to continue to pursue his whistleblower case. This established the Macktal Precedent: NDAs that restrict a whistleblower’s right to report regulatory violations to the government or restrict his or her right to testify in court or administrative proceedings are wholly void.

In 2010, Congress passed the Dodd-Frank Act, establishing whistleblower programs at both the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC). Inspired by the Macktal case, the attorneys at Kohn, Kohn & Colapinto worked pro bono to ensure that the agencies banned restrictive non-disclosure agreements in their whistleblower program rules.

Kohn, Kohn & Colapinto met with the Chief of Staff for the Chairman of the SEC and explained that restrictive NDAs could undermine the Dodd-Frank Act whistleblower program and urged the SEC to follow the Macktal precedent. Both the SEC and the CFTC adopted rules consistent with the Macktal precedent.

For example, the SEC rule 21F-17 states: “No person may take any action to impede an individual from communicating directly with Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement…with respect to such communications.”

After successfully advocating for SEC rules forbidding restrictive NDAs, Kohn, Kohn & Colapinto pushed for the agency to enforce this provision. On behalf of whistleblower Harry Barko, Kohn, Kohn & Colapinto filed a complaint with the SEC alleging that Kellogg Brown & Root (KBR) was forcing employees to sign restrictive NDAs as part of the company’s alleged “compliance” program. Kohn, Kohn & Colapinto requested that the SEC take action in the matter.

On April 1, 2015 the SEC announced an enforcement action against KBR, the first action taken against a company for language in NDAs that restricted whistleblowing. KBR was forced to pay a $130,000 penalty and agreed to cease this practice.

A landmark decision, the SEC’s KBR decision set the precedent that has been widely followed thereafter. The SEC has sanctioned numerous other companies based on the principles found in Barko-initiated enforcement action.