Two publicly traded companies agreed to settle Securities and Exchange Commission enforcement actions related to their use of separation agreements that the Commission claimed inhibited ex-employees from communicating with the SEC, in violation of their whistleblower rights under federal law and SEC rule. Under this rule (click here to access SEC Rule 21F-17(a)), no person can 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 … with respect to such communication.” In one action, against NeuStar, Inc., the SEC claimed that, after the SEC’s whistleblower rule became effective on August 12, 2011, at least 246 Neustar employees executed the firm’s standard severance agreement containing a broad anti-disparagement requirement that precluded employees from engaging in any communication that “disparages, denigrates, maligns” the firm, including communications with the SEC. The SEC claimed this clause violated its prohibition. Neustar agreed to pay a fine of US $180,000 to resolve its enforcement action, and to amend its severance agreements to comply with legal requirements. Separately, Sandridge Energy, Inc. agreed to pay a fine of US $1.4 million for using a standard severance agreement following the SEC’s adoption of its whistleblower rule in 2011 that contained a prohibition against former employees voluntarily cooperating with any governmental agency in any complaint or investigation regarding the company. Additionally, the SEC accused the firm of retaliating against an employee who had raised concerns with senior management regarding the company’s method of calculating oil and gas reserves periodically reported to the Commission. The company conducted no formal investigation into the employee’s claims and solely began an internal audit review that was never finalized. The firm fired the employee on April 1, 2015. Retaliating against whistleblowers at publicly traded companies is expressly prohibited by federal law (Click here to access 15 USC § 1514A(a).)

Legal Weeds: In 2016, the SEC brought and settled a number of enforcement actions against firms that included in their standard severance agreements language that the Commission determined potentially impeded an employee from disclosing to the SEC a possible securities law violation. (Click here for background in the article “Firm Sanctioned by SEC for Firing Whistleblower Who Allegedly Made False Allegations” in the October 2, 2016 edition ofBridging the Week.) It is clear that the SEC reads its anti-retaliation clause broadly. SEC and Commodity Futures Trading Commission registrants and SEC-regulated publicly traded companies should review their form employment and severance agreements to ensure they are consistent with regulatory requirements regarding employee whistleblower rights. (Click here to access existing CFTC whistleblower protections in Part 165 of its rules.) In 2016 the CFTC proposed to amend its whistleblower program to more closely emulate that of the SEC. Among other things, the CFTC proposed (1) new procedures to review whistleblower claims; (2) to clarify that the CFTC may bring enforcement actions against any employer that violates its anti-retaliation provisions; and (3) to prohibit any agreement or condition of employment, including a confidentiality or pre-dispute arbitration agreement, from containing a provision that might “impede” an individual from communicating a possible violation of law to CFTC staff. No final action on this rule has been taken since the comment period closed on September 29, 2016. (Click hereto access the CFTC proposal.)