On September 9, 2024, the U.S. Securities and Exchange Commission announced it had settled charges against seven public companies that utilized employment and employment-related agreements that the SEC believed violated its rules against impeding potential whistleblowers from reporting misconduct.

SEC’s history in protecting whistleblowers

The Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted on July 21, 2010, added Section 21F to the Securities Exchange Act of 1934 to protect whistleblowers from retaliation from their employers. Eligible whistleblowers are also entitled to a monetary award in the event the Securities and Exchange Committee (SEC) succeeds in obtaining a monetary order in a judicial or administrative enforcement action.

SEC Rule 21F-17(a) prohibits taking “any action to impede an individual from communicating directly with the SEC staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement . . . with respect to such communications.”

In recent years, the SEC has turned its attention to agreements between employers and employees, such as employment, consulting, restrictive covenant, separation, and settlement agreements, to determine whether they contain overbroad restrictions on employees communicating to third parties that may run afoul of Section 21F. If the SEC determines an employer has violated Rule 21F-17, they may seek civil penalties and require employers to take...

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