Suppose you’re aware of violations of securities laws at your place of employment but you are concerned that an employment agreement may prevent you from becoming a whistleblower. In that case, it’s always best to consult with an attorney.
The securities whistleblower attorneys at the Law Firm of David R. Chase and the Silver Law Group are experts at the relevant law, assisting whistleblowers in making successful reports, collect financial rewards, and helping them prevent or respond to retaliation.
But as a general rule, the Securities and Exchange Commission has been very clear on the issue: Companies cannot use employment agreements to circumvent the SEC laws meant to encourage whistleblowing.
Securities Exchange Act Rule 21F-17(a) provides that no action may be taken “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 communications.”
Given that, the Commission has held that when companies use agreements with employees to prohibit whistleblowing communications, they violate Rule 21F-17(a). As the Commission held in In Re KBR. Inc., “SEC rules prohibit employers from taking measures through confidentiality, employment, severance, or other type of agreements that may silence potential whistleblowers before they can reach out to the SEC. We will vigorously enforce this provision.”
In the past several years, the Commission has done just that. Applying that holding as broadly as it suggested it would, the Commission has held that companies cannot stop you from making a whistleblowing complaint through a confidentiality agreement, non-disclosure agreement, or a non-disparagement clause.
The Commission has also invalidated severance agreements requiring employees to forgo communications with regulatory bodies as a condition of receiving severance benefits, or to forfeit severance if a former employee were to receive a reward relating to an SEC report.
In June 2021, the Commission held that a company violated Rule 21F-17(a) when its company handbook required that employees seek prior approval from the firm’s legal counsel before coming forward to assist a government agency in an investigation.
The provisions aren’t even allowed in voluntary or optional contracts.
That’s because the Commission has Rule 21F-17(a) is violated if such an agreement could chill speech, i.e., potentially cause someone to refrain from speaking out. The Commission has even taken action against companies when there’s no evidence that the relevant provision dissuaded anyone from making a whistleblowing complaint.
Just the possibility of silencing an employee is enough to violate the rule.
If an employee agreement, or fears of retaliation, are leading you to wonder if you should report a securities law violation, contact the Silver Law Group and the Law Firm of David R. Chase. As securities attorneys with many years of experience, we know how to help you be rewarded, not penalized, for doing the right thing. For a free, confidential consultation about your information, contact us through our website or call us today at (800)975-4345.