The U.S. Securities and Exchange Commission (SEC) issued its first enforcement action under Rule 21F-17 about confidentiality agreements designed to stifle or discourage whistleblowers.
“The SEC will frown upon and consider it to be in violation of 21F-17 if you have language in any of your employee agreements which could have that effect,” said Lisa H. Cassilly, partner in Alston & Bird’s Labor and Employment Group. “You don’t need to seek to enforce the language. It’s the mere possibility that the employee could construe your language to limit him or her.”
Making sure employee agreements don’t damage privilege can be a “difficult line” to walk, said Cassilly. “I would recommend an acknowledgement confirming the witness’s understanding that he or she was participating in a communication which was considered to be privileged and that information imparted to him or her should be treated as confidential.
“It’s appropriate to include an express statement in the agreement making it clear that nothing in the agreement precludes an employee from communicating violations to the SEC,” she added.
After an employer has reviewed its agreements, it should remember that other communication with employees might still run afoul of 21F-17, such as a reminder to departing employees letting them know they have contractual obligations even after leaving.
“Given what we see from the SEC and our knowledge that they’ll be very focused on [this], it will be important to be careful about how you word that notification,” said Cassilly. “Sending a reminder letter to the departing employee might also be construed by the SEC as having an improper chilling effect on the employee’s cooperation.”
“The SEC will frown upon and consider it to be in violation of 21F-17 if you have language in any of your employee agreements which could have that effect,” said Lisa H. Cassilly, partner in Alston & Bird’s Labor and Employment Group. “You don’t need to seek to enforce the language. It’s the mere possibility that the employee could construe your language to limit him or her.”
Making sure employee agreements don’t damage privilege can be a “difficult line” to walk, said Cassilly. “I would recommend an acknowledgement confirming the witness’s understanding that he or she was participating in a communication which was considered to be privileged and that information imparted to him or her should be treated as confidential.
“It’s appropriate to include an express statement in the agreement making it clear that nothing in the agreement precludes an employee from communicating violations to the SEC,” she added.
After an employer has reviewed its agreements, it should remember that other communication with employees might still run afoul of 21F-17, such as a reminder to departing employees letting them know they have contractual obligations even after leaving.
“Given what we see from the SEC and our knowledge that they’ll be very focused on [this], it will be important to be careful about how you word that notification,” said Cassilly. “Sending a reminder letter to the departing employee might also be construed by the SEC as having an improper chilling effect on the employee’s cooperation.”