In a regulatory update that deserves close attention, the Securities and Exchange Commission (SEC) recently settled an administrative proceeding, during which it argued that an employer acted in a way that could have discouraged potential whistleblowers. In the case at hand, the employer, as a part of a severance agreement, mandated its employees to confirm that they had not filed a complaint against the company with any federal agency. It was this act, according to the SEC, that may have contravened Rule 21F-17.
According to the findings available at JD Supra, the SEC’s argument hinges on its interpretation of Rule 21F-17, which in essence stipulates that no person should undertake any action to impede another individual from directly communicating with the SEC about a potential securities law violation.
The SEC held the view that asking employees to formally state that they have not lodged a complaint against the employer, as a mandate for receiving separation pay, could be seen as potentially inhibitive. This position raises some pressing questions for corporations and the wider legal community.
Companies need to tread thoughtfully when designing employment termination agreements, especially when these contracts involve severance packages or other forms of compensation. The SEC’s latest stance suggests that embedding waiver clauses, particularly those where the employee attests to have not filed a complaint, could be perceived as a contravention of the whistleblower pro-protection provision of Rule 21F-17.
Thus, the legal community would be well-advised to keep a keen eye on developments surrounding the SEC’s interpretation and enforcement of this rule. Further clarification on this matter could potentially reshape how employers formulate their separation and severance agreements to ensure compliance with the evolving landscape of whistleblower protection law.