Navigating Whistleblower Protection Laws: Employer Considerations on Confidentiality and Severance Clauses
January 30, 2024
Employers must carefully consider the confidentiality and severance clauses they include in their agreements, as they may inadvertently violate whistleblower protection laws. Recent enforcement actions by the Securities and Exchange Commission (SEC) have resulted in significant fines for violations of Rule 21F-17, which prohibits actions that impede individuals from reporting potential securities law violations directly to the Commission.
Common clauses in employment agreements, confidentiality agreements, non-disparagement provisions, and settlement agreements have been found to violate Rule 21F-17. These include confidentiality clauses that restrict employees from disclosing information to government regulators without prior consent, clauses that prohibit employees from initiating contact with regulators, and settlement terms that prevent employees from collecting awards from whistleblower programs. Recent enforcement actions against companies like D.E. Shaw, Activision Blizzard Inc., and The Brink’s Company demonstrate the SEC’s commitment to enforcing Rule 21F-17.
Private employers, along with entities in customer and vendor agreements, must also comply with these regulations, as shown by SEC actions against Monolith Resources LLC and J.P. Morgan. Employers should also be aware that other federal agencies, including the Department of Justice (DOJ), the Department of Labor, the IRS, the Department of Transportation, and the Commodities Futures Trading Commission, also have similar whistleblower protection rules. Compliance with these agencies’ rules is equally important.
To avoid penalties, employers should review their policies and agreements to ensure compliance with Rule 21F-17 and other applicable regulations. This involves including carve outs for communications with regulators and ensuring that clauses are not overly broad and do not impede whistleblowing activity. Given the SEC’s demonstrated commitment to enforcing Rule 21F-17, compliance is essential to avoid possible penalties and other legal consequences.
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