The Securities and Exchange Commission brought and settled two enforcement actions against publicly traded companies for including in at least some of their severance agreements language that required employees to waive monetary recovery for discussing any matter regarding their employment with a government agency with jurisdiction over the companies. The SEC claimed that this language violated applicable whistleblower protections under law and its rules. In one action, BlackRock Inc. agreed to pay US $340,000 to the SEC for including in a separation agreement from October 14, 2011, through March 31, 2016, language that required departing employees to “waive any right to recovery of, incentives for reporting of misconduct, including without limitation, under the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Sarbanes-Oxley Act of 2002, relating to conduct occurring prior to the date of th[e] Agreement.” According to the SEC, 1067 BlackRock employees executed separation agreements containing this language although the SEC conceded it was not aware of a single former employee who did not communicate with it because of this language or against whom BlackRock took action of any kind to prevent communication. In a separate action, HomeStreet Inc., another publicly traded company, agreed to pay a US $500,000 fine to settle charges that it engaged in improper accounting practices; took affirmative steps to impede employees from communicating with SEC staff regarding their knowledge of these practices; and included language in some severance agreements to preclude employees from receiving financial incentives from the SEC for cooperating with it. Among other things, the SEC charged that, following a document request by the SEC to HomeStreet in 2015 regarding its accounting issues, the firm pro-actively questioned some employees to determine if they were the source of information to the SEC. The SEC said this conduct “acted to impede individuals from communicating directly with Commission staff about a possible security law violation.” The SEC also charged that, on at least two occasions, HomeStreet used a severance agreement that expressly stated that “[t]his release shall not prohibit Employee from … discussing any matter relevant to Employee’s employment with any government agency … but shall be considered a waiver of any damages or monetary recovery therefrom.” The SEC charged this language attempted to discourage employees from cooperating with it. Under the applicable SEC 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.”

Compliance 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 “Two Companies Charged by SEC for Whistleblower Infractions” in the January 8, 2017 edition of Bridging the Week.) It is clear that the SEC reads its anti-retaliation clause broadly. All persons subject to SEC and Commodity Futures Trading Commission oversight 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 the CFTC's proposed amended rules has been taken. (Click here to access the CFTC proposal.)