Monthly Archives: June 2015

Contracts

Will the SEC Target Your Company’s Confidentiality Agreement?

The Securities Exchange Commission (SEC) has been ramping up its review of confidentiality provisions that affect its enforcement efforts and on the rights of whistleblowers. In fact, the agency has even requested copies of several companies’ employment contracts, non-disclosure agreements, and other documents that have been signed by employees over the past several years. The SEC is looking for any agreements that have a “chilling effect” on an employee’s ability to bring allegations of wrongdoing to its attention.

On April 1, 2015, the SEC filed an enforcement action against KBR, Inc. and directed at the contractual provisions it believes discourages whistleblowing activity. KBR used a form confidentiality statement in internal investigations pursuant to the company’s Code of Business Conduct Investigation Procedures Manual. The confidentiality statement, which witnesses were required to sign at the beginning of an interview, contained the following language:

I understand that in order to protect the integrity of this review, I am prohibited from discussing any particulars regarding this interview and the subject matter discussed during the interview, without the prior authorization of the Law Department. I understand that the unauthorized disclosure of information may be grounds for disciplinary action up to and including termination of employment.

The SEC alleged this language violated SEC Rule 21F-17(a) which provides that “[n]o person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement.” The goal of Rule 21F-17(a) is to promote the reporting of potential unlawful conduct to the SEC.

This action was resolved by an Order whereby KBR consented to revise the language and to pay $130,000. It is important to note that there was no evidence that the language at issue had ever deterred or prevented an employee from making a report to the SEC or others. The SEC merely reasoned that the language had a chilling effect on whistleblowing efforts.

KBR consented to settling this matter without admitting or denying the charges. It also agreed to amend its confidentiality agreement by using the following language approved in this case by the SEC:

Nothing in this Confidentiality Statement prohibits me from reporting possible violations of federal law or regulation to any governmental agency or entity, including but not limited to the Department of Justice, the Securities and Exchange Commission, the Congress, and any agency Inspector General, or making other disclosures that are protected under the whistleblower provisions of federal law or regulation. I do not need the prior authorization of the Law Department to make any such reports or disclosures and I am not required to notify the company that I have made such reports or disclosures.

Takeaway Points

The SEC is focused on taking enforcement action against company contracts that contain language that have a chilling effect on whistleblowing. Your company should take immediate action to review your employment contracts, confidentiality agreements and other types of agreements to determine if they contain language that the SEC may find has the effect of impeding an employee’s ability to report possible violations to government agencies.

This case gives businesses some insight as to what the SEC considers as acceptable language in confidentiality agreements. Of course, this language may not be applicable in every situation and where the language is placed may prove to be important at some point, but for now the KBR Order is the only example we have of language that the SEC deems acceptable.

If you have questions or concerns regarding the language used in your employment contracts, contact us today to schedule an initial consultation. Leslie S. Marell has been practicing business and commercial law for over 25 years. She is established in private practice and has extensive legal experience counseling companies in the areas of business contracts and transactions, purchasing, sales, marketing, computer and technology law, employment law and day to day legal matters. Let us provide your company the advice and guidance you need.

 

Contracts

If you don’t Understand your Contract, It can be Costly!

You have probably heard that is it important to thoroughly read a contract before you sign it. However, reading it is only half of it – you must also make sure you understand your rights and obligations under it. Whether this means you confer with an attorney or read the contract five times over, it is essential.

Joe Wickline, a coach for the University of Texas football team, may have learned this lesson the hard way. Texas University hired Wickline in 2014 as its offensive line coach and offensive coordinator. When Wickline was hired, he was still under contract with Oklahoma State University (OSU). The OSU agreement permitted Wickline to leave without penalty, but only if certain requirements had been met. OSU believed that Wickline had not met the required conditions for leaving and filed a breach of contract lawsuit against Wickline seeking $600,000 in damages. Wickline filed a countersuit against OSU in a Texas court.

Wickline’s countersuit was dismissed by the Texas judge due to a provision in the contract that required all litigation to be filed in Payne County, Oklahoma. The lawsuit filed by OSU for breach of contract was filed in Payne County and is still pending. In short, OSU seeks to prove that Wickline is not controlling the play calls for the Longhorns. If this can be established, OSU will recover the damages it seeks because Wickline will have made a lateral move to Texas and failed to take a promotion with “play-calling duties,” as required to avoid penalty in his contract with OSU. Thus far, the University of Texas has not been named as a defendant in the lawsuit.

It remains to be seen whether Wickline met the requirements for terminating his OSU contract, but his case demonstrates how costly it can be if you do not understand your rights and duties under a contract.

If you are entering a contract and you are not sure you fully understand all of its terms and conditions, let Leslie S. Marell assist you. We serve as general counsel to clients who do not require, or choose not to employ, a full-time lawyer in-house. Call today to schedule your initial consultation.

 

Contracts

How Does the CISG Differ from the UCC?

Hopefully you have read our previous blog titled “Contracts for the Sale of Goods & the CISG.” This blog will focus on some of the key differences between the United Nations Convention on the International Sale of Goods (CISG) and the Uniform Commercial Code (UCC). When the CISG is applied, the parties often make inaccurate assumptions regarding the existence of a contract between them. For example:

  • The contract may be declared invalid due to its indefiniteness if neither the price nor a formula for calculating the price is set forth. This can be fatal to the contract under the CISG but not under the UCC. If the court must determine the price under the CISG, it will declare the price to be the price charged at the time of conclusion, not the reasonable price standard at the time of delivery that is applied under the UCC.
  • Under the CISG, a revocable offer becomes irrevocable when the offeree mails its acceptance or if the offeree relies on the offer. This gives rise to a potential claim for full contractual damages rather than simply a reliance interest or other quasi-contractual or equitable remedy.
  • If the offer sets a deadline by which it must be accepted, under the CISG the offer is irrevocable until that date. In contrast, the UCC provides that an offer is revocable until it is accepted, with certain strict exceptions.
  • The CISG, in contrast to the UCC, doesn’t require the contract to be in writing or meet any other requirements as to form. In fact, the CISG allows a contract to be proved by any means, including witness testimony.
  • Under the CISG, if the offer and acceptance do not match perfectly (which often occurs when each party uses their own standard forms), the acceptance will be treated as a counter-offer which is often deemed accepted by performance of the contract. This can result in the seller’s terms being applied to the purchase and sale under the CISG, which should be motivation for buyers to opt-out of the CISG. Under the UCC, only the terms that both parties have agreed to will be included in the contract.

Finally, U.S. businesses have a better understanding of what to expect under the UCC because there is extensive case law interpreting it. To ensure that the UCC applies to your international contracts for the sale of goods, make sure your contracts specifically and explicitly exclude the CISG.

To ensure that your contract provides you with the most protection available, contact Leslie S. Marell to schedule an appointment. Our office is located in Torrance, California, but we proudly serve businesses of all sizes from all over the country.