In less than a fortnight following its last sanctions against a private employer for purported transgressions of whistleblower protection rules, the Security and Exchange Commission (SEC) has struck again. This time, the SEC is focusing on the phrasing of a separation agreement that it claims contradicts Rule 21F-17(a) of the Exchange Act (“Rule 21F”).
Just recently, the SEC issued an Order levelling charges against a commercial real estate services and investment firm for such infractions, resulting in fines totalling $375,000. While specific company details remain confidential, this incident casts a fresh spotlight on the SEC’s determined efforts to police employment agreements under Rule 21F. It serves as a potent reminder to employers to carefully review any employment-related contracts for compliance with federal laws, particularly those concerning whistleblower protection.
Introduced as part of the Dodd-Frank Act, Rule 21F was designed to encourage whistleblowers to report possible securities law violations. It prohibits any action impeding an individual from communicating directly with the SEC about potential securities law breaches.
In recent years, the SEC has become increasingly vigilant in probing any practices that could be deemed as thwarting a prospective whistleblower. The rule’s broad language and the Commission’s resolved enforcement have led to a heightened level of scrutiny on employment agreements, which can, unintentionally or otherwise, deter employment law violations being reported.
This latest enforcement initiative underscores the SEC’s commitment to protecting potential whistleblowers and should be taken as a stern warning by employers with regards to their contractual obligations under Rule 21F.
As reported by JD Supra, while businesses work to address the economic impact of the COVID-19 pandemic, maintaining compliance with Rule 21F and other labour laws should remain a priority of utmost significance. This recent order by the SEC serves to underscore the urgency and importance of regularly reviewing, updating and potentially revising employment agreements.
It is key for employers to retain knowledgeable legal counsel to ensure the legality of their practices, both in terms of employment-related contracts and broader regulatory compliance.