Whether intentionally or not, in drafting certain provisions of settlement and severance agreements with employees, many employers have used language that violates the anti-retaliation protections for individuals who report violations of the securities laws and Foreign Corrupt Practices Act (“FCPA”). The Securities and Exchange Committee (“SEC”) promulgated Rule 21F-17(a) making it unlawful “to impede the efforts of individuals from communicating directly with the Commission staff… including enforcing, or threatening to enforce, a confidentiality agreement…” (17 C.F.R. §240.21F-17(a)). 

 Based upon public statements of various SEC officials, the majority of employee-whistleblower notices of possible violation emanate from internal corporate reporting to senior management.  In many cases, employers have mistakenly responded to such employee conduct with retaliatory actions, including demotion, re-assignment/marginalization of function, suspension or termination.  Many corporate whistleblowers are required to execute separation agreements in order to receive severance benefits.  This article examines commonly used provisions which may violate the letter and spirit of the SEC Rule that incentivizes and protects whistleblowers.

Provisions and clauses restricting employee conduct include:

            1. Post termination confidentiality and non-disclosure by employee;

            2. Requirement that employee waive whistleblower rewards;

            3. Restricting employee from communicating with the SEC and requiring representations or acknowledgements from the former employee that he/she has not filed any suit, claim, complaint or charge regarding the employer with any regulatory authority or court;

            4. Requiring employee to cooperate with Company in any regulatory investigation and/or to inform employer of any employee communication with the SEC;

These provisions may be characterized as contrary to the clear Congressional intent in establishing the whistleblower protection program, allowing employees to participate in and receive the financial rewards of the “bounty program”, and SEC rules pursuant to the Dodd-Frank Act.

Conclusions

Corporate counsel should carefully review Company ethics rules, codes of conduct, industry “best practices”, and supervisory policies and procedures when drafting settlement agreements that contain provisions which the SEC (or courts) could construe as retaliatory or an impediment to the lawful conduct of a whistleblower.  Due consideration should be given to the requirements of Rule 21F-17(a) when drafting severance clauses to insure that the Company is not accused of restricting the responsibility of the SEC to investigate “tip complaints or referrals” from former employees.  Finally corporate counsel should coordinate with outside counsel to insure that there is a clear understanding of the SEC requirements and that the Company’s severance policies/procedures are in compliance with the whistleblower reward program.  Counsel should also periodically monitor legislative, regulatory and judicial developments involving the whistleblower program.