Less than two weeks after it last penalized a private employer for alleged violations of whistleblower protection rules in its employee separation agreements, the Securities and Exchange Commission (“SEC”) once again takes aim at the language of a separation agreement it alleges violates Rule 21F-17(a) of the Exchange Act (“Rule 21F”). Just yesterday, the SEC issued an Order settling charges with a commercial real estate services and investment firm for such violations through a fine of $375,000, among other terms. The SEC’s aggressive and continued enforcement of whistleblower protection rules is not new, but the Order is the first of its kind in one significant way: it involves an employee’s past, rather than prospective, communications with government agencies.

The separation agreement in question contained the following language:

Employee represents and acknowledges [t]hat Employee has not filed any complaint or charges . . ., with any state or federal court or local, state or federal agency, based on the events occurring prior to the date on which this Agreement is executed by Employee.

The separation agreement further stipulated that the “Employee may not execute this Agreement prior to the Date of Termination.” The SEC concluded that this combined language violated Rule 21F, which prohibits employers from imposing policies that may impede employees from communicating with the SEC. Specifically, the SEC stated that the separation agreement:

required, in effect, that the employee represent that at the time of executing the [separation agreement], the employee has not filed a complaint or charges based on either (i) events occurring at any time before termination, i.e., events spanning the employee’s entire employment  . . .or (ii) events occurring between termination and the employee’s executing the [separation agreement]. By requiring this representation, [the employer] took action to impede potential whistleblowers from reporting complaints to the Commission.

Another penalty should come as no surprise to those following the SEC’s aggressive enforcement of its whistleblower program. Its new approach in targeting language that requires employees to represent they have not filed a complaint or a charge with a government agency in the past, however, is significant.

What should employers do in the wake of this stepped up SEC enforcement? As we recently stated in a Wall Street Journal article on this SEC Order, “such settlements are significant because they demonstrate that the SEC is becoming more aggressive on enforcement as it examines all kinds of companies for language in agreements that may stop whistleblowing reporting, both during or after employment.” Accordingly, employers should work with counsel and conduct a comprehensive review of all of their handbook policies and template agreements, including offer letters and separation agreements, identify language that the SEC may allege impedes employees from communicating with it, and modify as appropriate.

Back to Workforce Bulletin Blog

Search This Blog

Blog Editors

Authors

Related Services

Topics

Archives

Jump to Page

Subscribe

Sign up to receive an email notification when new Workforce Bulletin posts are published:

Privacy Preference Center

When you visit any website, it may store or retrieve information on your browser, mostly in the form of cookies. This information might be about you, your preferences or your device and is mostly used to make the site work as you expect it to. The information does not usually directly identify you, but it can give you a more personalized web experience. Because we respect your right to privacy, you can choose not to allow some types of cookies. Click on the different category headings to find out more and change our default settings. However, blocking some types of cookies may impact your experience of the site and the services we are able to offer.

Strictly Necessary Cookies

These cookies are necessary for the website to function and cannot be switched off in our systems. They are usually only set in response to actions made by you which amount to a request for services, such as setting your privacy preferences, logging in or filling in forms. You can set your browser to block or alert you about these cookies, but some parts of the site will not then work. These cookies do not store any personally identifiable information.

Performance Cookies

These cookies allow us to count visits and traffic sources so we can measure and improve the performance of our site. They help us to know which pages are the most and least popular and see how visitors move around the site. All information these cookies collect is aggregated and therefore anonymous. If you do not allow these cookies we will not know when you have visited our site, and will not be able to monitor its performance.