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SEC Brings Action Against Employer for Agreements Requiring Employees to Waive Recovery if They Blow the Whistle
11 August 2016
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This week, the SEC announced its second major enforcement action against an employer for using contracts with employees that seek to impede employees from engaging in protected whistleblowing activity.
The severance agreements at issue had a carve-out from their confidentiality provision that permitted departing employees to report wrongdoing to regulators but required them to waive any right to monetary recovery if they did so.
Exchange Act Rule 21F-17, which went into effect five years ago this week, prohibits "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."
This case is an important reminder for employers to review all agreements that they have with current and former employees to ensure that the confidentiality provisions do not explicitly or implicitly prohibit protected whistleblowing activities.
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