In 2011, the U.S. Securities and Exchange Commission adopted Rule 21F- 17 under the Securities Exchange Act of 1934. It prevents companies from, among other things, using confidentiality agreements to impede whistleblowing to the SEC.
Under the Obama administration, the SEC repeatedly enforced this rule and broadly interpreted its scope. Enforcement actions under the rule declined under the Trump administration, but enforcement now appears to be a priority under the current administration.
To illustrate this renewed and arguably expanded risk to employers, we analyze two recent and noteworthy settlement orders.
The first order was issued against a company executive for allegedly impeding a whistleblower's communications with the SEC by restricting the employee's access to company systems. [1] Employers likely will find this concerning because the order lacks any clear indication that the employer knew of the whistleblower's attempt to communicate with the SEC.
The employer appears to have had a legitimate belief that it needed to limit the risk of the employee sharing its confidential information with third parties based on the employee's threats.
The second order was issued against a company for its use of what may appear at first blush to be a fairly standard confidentiality agreement with a liquidated damages provision. Of central importance, the agreement lacked a carveout for reports to the SEC. [2]
The SEC found the employer's awareness of Rule 21F-17 to be...
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