EEOC and SEC Penalties Focus on Severance Agreements:
Checklist for Identifying Problematic "Anti-Wh
istleblower" Provisions

Since 2015, the SEC and the EEOC have been intensifying their efforts to penalize employers for employment-related practices that prohibit employees from collecting whistleblower awards, or that discourage employees from cooperating with government regulators.  Public and private employers should beware because these regulatory enforcement initiatives have reached a wide range of industry groups, and have resulted in six-figure settlements ($1.5M is the highest so far).

The following checklist draws from publicly-disclosed settlements (with hot links to their announcements) in order to enable employers to identify employment practices that government regulators would seem likely to challenge if they audit or receive complaints from current or former employees.

__ Problem 1: requiring employees to sign confidentiality agreements that threaten discipline or job loss if their involvement in an internal investigation includes discussion with any outside parties without prior consent of the company's legal department.

  • SEC Penalty:  $130,000 and amendment of confidentiality agreements in order not to discourage whistle-blowing.

__ Problem 2: as a condition for severance, requiring employees to waive possible whistleblower awards (from filing complaints with the SEC or another governmental agency).

__ Problem 3: restricting disclosure to governmental agencies other than with company permission or as required by law (e.g., a subpoena).

  • SEC Penalty: not disclosed.

__ Problem 4: extending non-disparagement covenants to include communications with the SEC and other regulators, and requiring a forfeiture of all severance - other than $100 - for violations.

__ Problem 5: prohibiting voluntary outreach to any government agency, requiring company consent before confidential information could be shared with a government agency, and extending non-disparagement covenants to government regulators.

With the items above in mind, employers should review – and consider updating -- their employment agreements, severance plans and policies, settlements, and handbooks.

Changes may also be needed in response to 2016’s Defend Trade Secrets Act, which confers immunity from civil and criminal liability -- under both federal and state law -- on employees who disclose trade secrets in confidence to a lawyer or government official in connection with reporting or investigating a violation of law, or who file trade secret information in a proceeding under seal.  The DTSA requires that employers provide notice of employee immunity from civil and criminal liability “in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.”  One consequence of the failure to give the mandatory notice is that the employer cannot recover exemplary damages or attorneys’ fees in an action brought under DTSA for misappropriation of a trade secret.  That may not be the only consequence; an employee could also argue that the employer’s failure to include the statutorily mandated notice invalidates the confidentiality provision in its entirety.