What Three SEC Whistleblower Protection Actions Say About Employee Agreements

Three recent enforcement actions from the SEC underscore the importance of companies reviewing their employee agreements, especially in relation to whistleblower protection.

All three cases targeted both private and public companies for violating Rule 21F-17, which prohibits actions that hinder individuals from reporting securities law violations directly to the Commission.

SEC Director Gurbir Grewal emphasized the seriousness of enforcing whistleblower protections, urging companies to ensure their agreements don't obstruct whistleblowers. One key lesson is to explicitly allow employees to report potential securities law breaches in employment agreements.

Here are some lessons that companies should take from the SEC’s recent actions:

Consistency in policy language is key.

All internal documents, including code of conduct, employment agreements, and training materials, should have uniform language to avoid conflicting or restrictive clauses. Failing to do so could lead to a violation of the SEC's whistleblower protection rule, as seen in a recent case.

Conditions on financial incentives may impede whistleblower rights.

Companies should refrain from imposing conditions on employees' financial incentives, as this can impede their whistleblower rights. Recent cases highlight instances where companies required departing employees to sign agreements limiting their rights to file complaints with federal agencies to receive post-termination payments.

Private companies are not exempt.

Both private and public companies must avoid actions or agreements that discourage employees from communicating with the SEC about potential securities law violations. Privately held companies are held to the same standards as public ones in this regard.

Policy alone may constitute a violation.

Finally, a Rule 21F-17 violation can occur even without a whistleblower retaliation claim. Inconsistent or missing language in company policies, procedures, agreements, or policies could be grounds for an enforcement action. Companies should take steps to rectify any potential issues in their agreements promptly. This includes making it clear in separation agreements that departing employees are free to communicate with governmental agencies, including the SEC, and ensuring that agreements do not restrict an employee's ability to receive financial awards for reporting securities law violations. Compliance staff should also be well-versed in the SEC's whistleblower protection rule, and employees should certify their understanding of their rights.

If you believe your employment agreement may be hindering your ability to blow the whistle on potential securities law violations, it's crucial to contact an experienced attorney. The Kardell Law Group specializes in representing whistleblowers. We can assess your situation, discuss your rights, and explore the best course of action to protect both your interests and the integrity of our financial markets.