Since 2015, the SEC has brought nearly two dozen enforcement actions for violations of the whistleblower protection rules under Rule 21F-17(a) against employers for actions taken to impede reporting to the SEC. The bulk of these actions have focused on language in employee-facing agreements that allegedly discouraged such reporting. The SEC shows no sign of slowing down; indeed, the Commission has brought five enforcement actions in this past fiscal year alone, and the penalties imposed for these violations appear to be increasing. The settlements – and the risk they represent – serve as a reminder for companies to review their existing employment documents and internal policies, including confidentiality policies, to ensure that restrictive language is removed and that appropriate whistleblower carveout language is included. Conducting this review, and making any appropriate changes, will help ensure compliance with Rule 21F-17(a).

  1. Identify Types of Agreements Subject to Rule

The majority of SEC actions alleging violations of Rule 21F-17(a) involve employee/employer relationships, and specifically focus on agreements that contain restrictive language deemed to impede SEC reporting. The types of agreements include employment agreements, severance agreements, non-disclosure agreements, release agreements, and other confidentiality agreements. Those are hardly the only sources of potentially restrictive – and sanctionable – language. The SEC has warned companies that improperly restrictive language may also be included in a company’s internal policies, procedures, and guidance, such as codes of conduct, compliance manuals, training materials, and other such documents.

Of course, employers are not the only ones who may run afoul of Rule 21F-17(a). The Rule is broader and not limited to employer/employee agreements and policies. For example, the SEC has brought actions involving agreements presented to customers and investors. The SEC has also brought actions against an employee who sought to impede a fellow employee’s reporting.

  1. Amend Restrictive Language that Could be Violative

In settlements to date, the SEC has focused on a variety of provisions that have been found to impede whistleblowers from reporting violations:

  • Release stating that the individual would not discuss the matter with FINRA, the SEC, or anyone else.
  • Language stating that the employee was “waiving your right to any monetary recovery or other individual relief” in connection with any charge or complaint filed with governmental agencies.
  • Separation agreement providing that reporting to administrative agencies was allowed, “but only if I notify the Company of a disclosure obligation or request within one business day after I learn of it and permit the Company to take all steps it deems to be appropriate to prevent or limit the required disclosure.”
  • Separation or similar agreements requiring the employee to certify that they had “not filed any complaint or charges against [the company], or any of its respective subsidiaries, affiliates, divisions, predecessors, successors, officers, directors, shareholders, employees, representatives or agents…with any state or federal court or local, state or federal agency.”
  • Separation agreements providing that employees would not “at any time in the future voluntarily contact or participate with any governmental agency in connection with any complaint or investigation pertaining to the Company, and [may] not be employed or otherwise act as an expert witness or consultant or in any similar paid capacity in any litigation, arbitration, regulatory or agency hearing or other adversarial or investigatory proceeding involving the Company.”
  • Compliance policy language stating that employees are “strictly prohibited from initiating contact with any Regulator without prior approval from the Legal or Compliance Department.”
  • Employee confidentiality agreements broadly defining “Confidential Information” to include all company financial information and financial reports and imposing a liquidated damages provision for violations, where the agreements did not also include “whistleblower carve-out” language.
  • A settlement agreement with investors that required confirmation that investors and their counsel have not contacted, and would not in the future contact, the SEC or other governmental agencies concerning matters in the agreement.

SEC settlements have also focused on contradictory language within a particular agreement itself or conflicts between different agreements or policies. For example, the SEC has alleged a Rule 21F-17(a) violation where a company’s compliance manual and compliance training material specifically prohibited employees from initiating contact with any regulator without prior approval from the legal or compliance department, even though the company’s code of conduct permitted employees to report to the government about possible violations of law.  The SEC has brought cases regardless of whether there was evidence that any employees had actually been impeded from reporting as a result of the restrictive language.

  1. Add Remedial Language that Has Been Cited with Approval

The SEC has also, by implication through its settlements, noted language that facially complies with Rule 21F-17. Examples of whistleblower carveout language that the SEC has cited with approval include the following:

  • Nothing in this Section shall be construed or deemed to interfere with any protected right to file a charge or complaint with any applicable federal, state or local governmental administrative agency charged with enforcement of any law, or with any protected right to participate in an investigation or proceeding conducted by such administrative agency, or to recover any award offered by such administrative agency associated with such charge or complaint.”
  • Nothing in this policy or any other Company policy or agreement is intended to prohibit you (with or without prior notice to the Company) from reporting to or participating in an investigation with a government agency or authority about a possible violation of law, or from making other disclosures protected by applicable whistleblower statutes.”
  • Where restrictive confidentiality provisions exist: “Employee can provide confidential information to Government Agencies without risk of being held liable for liquidated damages or other financial penalties.”

Implications for Employers and Others Subject to Rule

Employers and other companies subject to the requirements of Rule 21F-17 should take note of the SEC’s enforcement actions. These actions emphasize the SEC’s continued focus on identifying Rule violations and protecting potential whistleblowers, even in the absence of affirmative acts to impede reporting. As a result, companies should revisit and carefully examine policies and employment-related agreements that address confidentiality to ensure that restrictions and carveouts promote compliance with Rule 21F-17. Even a minor deviance from the SEC’s recommended verbiage could result in a costly enforcement action – scrutiny which may be avoided by closely hueing to language the SEC has previously approved in other enforcement actions.

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Photo of Joshua M. Newville Joshua M. Newville

Joshua M. Newville is a partner in the Litigation Department and a member of Proskauer’s White Collar Defense & Investigations Group and the Asset Management Litigation team.

Josh handles securities litigation, enforcement and regulatory matters, representing corporations and senior executives in civil and…

Joshua M. Newville is a partner in the Litigation Department and a member of Proskauer’s White Collar Defense & Investigations Group and the Asset Management Litigation team.

Josh handles securities litigation, enforcement and regulatory matters, representing corporations and senior executives in civil and criminal investigations. In addition, Josh advises registered investment advisers and private fund managers on regulatory compliance, SEC exams, MNPI/insider trading and related risks.

Before joining Proskauer, Josh was senior counsel in the U.S. Securities and Exchange Commission’s Division of Enforcement, where he investigated and prosecuted violations of the federal securities laws. Josh served in the Enforcement Division’s Asset Management Unit, a specialized unit focusing on investment advisers and the asset management industry. His prior experience with the SEC provides a unique perspective to help asset managers manage risk and handle regulatory issues.

Photo of Steven J. Pearlman Steven J. Pearlman

Steven J. Pearlman is a partner in the Labor & Employment Law Department and Co-Head of the Whistleblowing & Retaliation Group and the Restrictive Covenants, Trade Secrets & Unfair Competition Group.

Steven’s practice covers the full spectrum of employment law, with a particular…

Steven J. Pearlman is a partner in the Labor & Employment Law Department and Co-Head of the Whistleblowing & Retaliation Group and the Restrictive Covenants, Trade Secrets & Unfair Competition Group.

Steven’s practice covers the full spectrum of employment law, with a particular focus on defending companies against claims of employment discrimination, retaliation and harassment; whistleblower retaliation; restrictive covenant violations; theft of trade secrets; and wage-and-hour violations. He has successfully tried cases in multiple jurisdictions, and defended one of the largest Illinois-only class actions in the history of the U.S. District Court for the Northern District of Illinois. He also secured one of only a few ex parte seizures orders that have been issued under the Defend Trade Secrets Act, and obtained a world-wide injunction in federal litigation against a high-level executive who jumped ship to a competitor.

Reporting to boards of directors, their audit committees, CEOs and in-house counsel, Steven conducts sensitive investigations and has testified in federal court. His investigations have involved complaints of sexual harassment involving C-suite officers; systemic violations of employment laws and company policies; and fraud, compliance failures and unethical conduct.

Steven was recognized as Lawyer of the Year for Chicago Labor & Employment Litigation in the 2023 edition of The Best Lawyers in America. He is a Fellow of the College of Labor and Employment Lawyers.  Chambers describes Steven as an “outstanding lawyer” who is “very sharp and very responsive,” a “strong advocate,” and an “expert in his field.” Steven was 1 of 12 individuals selected by Compliance Week as a “Top Mind.” Earlier in his career, he was 1 of 5 U.S. lawyers selected by Law360 as a “Rising Star Under 40” in the area of employment law and 1 of “40 Illinois Attorneys Under Forty to Watch” selected by Law Bulletin Publishing Company. Steven is a Burton Award Winner (U.S. Library of Congress) for “Distinguished Legal Writing.”

Steven has served on Law360’s Employment Editorial Advisory Board and is a Contributor to Forbes.com. He has appeared on Bloomberg News (television and radio) and Yahoo! Finance, and is regularly quoted in leading publications such as The Wall Street Journal.

The U.S. Chamber of Commerce has engaged Steven to serve as lead counsel on amicus briefs to the U.S. Supreme Court and federal circuit courts of appeal. He was appointed to serve as a Special Assistant Attorney General for the State of Illinois in employment litigation matters. He has presented with the Solicitor of the DOL, the Acting Chair of the EEOC, an EEOC Commissioner, Legal Counsel to the EEOC and heads of the SEC, CFTC and OSHA whistleblower programs. He is also a member of the Sedona Conference, focusing on trade secret matters.

Photo of Robert Pommer Robert Pommer

Robert W. Pommer III is a partner in the Litigation Department and a member of Proskauer’s Securities Litigation, White Collar Defense & Investigations groups and the Asset Management Litigation team.

Bob’s practice focuses on a broad range of securities-related enforcement and compliance issues.

Robert W. Pommer III is a partner in the Litigation Department and a member of Proskauer’s Securities Litigation, White Collar Defense & Investigations groups and the Asset Management Litigation team.

Bob’s practice focuses on a broad range of securities-related enforcement and compliance issues. He represents private fund managers, financial institutions, public companies, and their senior executives in enforcement investigations and litigation conducted by the SEC, the U.S. Department of Justice, and other governmental entities and financial services regulators. He also conducts internal investigations and counsels investment advisers and public companies on regulatory compliance, corporate governance and other SEC-related issues.

Prior to his career in private practice, Bob served as Assistant Chief Litigation Counsel in the SEC’s Division of Enforcement for nine years. While there, he investigated and litigated several high-profile cases involving complex financial fraud and audit failures. Bob also worked on enforcement actions involving insider trading, investment adviser and broker-dealer issues, market manipulation and other violations of the federal securities laws.

Photo of Michael Guggenheim Michael Guggenheim

Michael Guggenheim is an associate in the Litigation Department.

Michael earned his J.D. from Harvard Law School and his B.A., summa cum laude, from Rutgers University. While at law school, Michael worked for the Litigation Department of the San Francisco City Attorney…

Michael Guggenheim is an associate in the Litigation Department.

Michael earned his J.D. from Harvard Law School and his B.A., summa cum laude, from Rutgers University. While at law school, Michael worked for the Litigation Department of the San Francisco City Attorney, was a teaching assistant for the Harvard Law School Negotiation Workshop, and litigated election law cases with Common Cause. He also served as the Executive Managing Editor of the Harvard Law & Policy Review and coached the Boston College mock trial team.