June 24, 2022

Whistleblowers: SEC Brings Action Based on Confidentiality Agreement Terms

A few years ago, the SEC brought a handful of enforcement actions targeting confidentiality provisions in employee agreements that didn’t include provisions expressly permitting the employees bound by those provisions from reporting allegations of misconduct to the SEC.  There hasn’t been a lot of activity on that front in recent years, but that changed earlier this week when the SEC announced an enforcement action against Brink’s based on an overly restrictive confidentiality agreement that included an aggressive liquidated damages provision.  Here’s an excerpt from the SEC’s announcement:

The SEC’s order finds that, from at least April 2015 through April 2019, Brinks used an employee confidentiality agreement that prohibited employees from disclosing confidential company information to any third party without the prior written approval of Brinks. According to the SEC’s order, the confidentiality agreement threatened current and former employees with liquidated damages and legal fees if they failed to notify the company prior to disclosing any financial or business information to third parties.

According to the order, the confidentiality agreement did not provide an exemption for potential SEC whistleblowers. The SEC’s order finds that, in 2015, shortly after the SEC had instituted its initial whistleblower protection action, Brinks modified its employee confidentiality agreement by adding a $75,000 liquidated damages provision for violations of the agreement.

The company consented to consented to the issuance of an order finding that it violated Rule 21F-17(a) of the Securities Exchange Act of 1934 and ordering it to cease & desist from future violations. The company also agreed to pay a $400,000 penalty and to comply with certain undertakings, including modifying its employment agreements to make it clear that employees were not prohibited from dropping a dime on the company to the SEC “or any other federal, state, or local governmental regulatory or law enforcement agency.”

In a statement, Commissioner Peirce objected to the requirement that the company modify its employment agreements to permit employees to report alleged misconduct to governmental or law enforcement authorities in addition to the SEC. She said that the SEC “plainly lacks statutory authority to impose such a broad requirement, and Rule 21F-17 does not purport to assert such authority” and noted that just because a company agreed to particularly broad language as part of a settlement shouldn’t be construed as an indication that other companies need to use the same or similar language.

John Jenkins