Earlier this week, as part of an ongoing investigation that resulted in several settlements last year, the SEC announced settlements with 7 public companies that allegedly used employment, separation and other agreements that impeded whistleblowers from reporting potential misconduct to the SEC – in violation of Exchange Act Rule 21F-17(a). The companies agreed to pay penalties rainging from $19,500 to $1.4 million – and agreed to take steps to remediate the violations.

At 5-6 pages each, these latest orders are a pretty easy read and add to the body of knowledge that we have from prior enforcement actions. Here are a few things I noticed (also see this Cooley blog):

1. The Commission wasn’t aware of any instances in which the companies took action to enforce the provisions or in which the affected employees declined to speak with the SEC.

2. The SEC took issue with provisions where the employee waived their right to possible whistleblower awards – even though the provision didn’t prohibit the employee from communicating with the SEC and despite wording that the provision would apply only “to the maximum extent permitted by law.”

3. The SEC took issue with provisions that said individuals were free to disclose confidential information to government agencies, but with the caveats that the disclosure could not exceed the disclosure required by law, regulation or order, and that the individual provided written notice of any such order to a company officer in advance of making disclosure.

4. Some of the agreements were with contractors/consultants rather than employees.

5. The companies cooperated with the SEC after being contacted, by revising agreement templates and using reasonable efforts to notify affected employees that they were not limited from contacting the SEC or obtaining awards.

6. The Commission considered one company’s ability to continue as a going concern in determining the amount of the financial penalty.

For companies, there are also a couple of high-level takeaways from the SEC’s announcement:

1. Check your agreements & releases (again) – It’s time to revisit Meredith’s podcast about getting your existing & future agreements and policies in order (and this blog) – make sure to consult your in-house and/or outside employment law experts.

2. Consider your overall compliance & internal reporting environment – Remember that both the DOJ and the SEC are actively encouraging whistleblowers to contact government agencies and that once a whistleblower comes to light, you have to be very careful in taking any employment-related actions (in other words, make sure to talk to your employment counsel here too).

– Liz Dunshee