In September 2023, the U.S. Securities and Exchange Commission (SEC) charged two companies for their violation of the SEC’s whistleblower protection rule.
These charges follow months of state and federal action to uphold employees’ rights where they may be violated in employment agreements. KingSpry’s Employment Law Chair, Avery E. Smith, details the SEC’s recent actions and provides guidance to employers to understand why the SEC reached its decisions and how they can ensure compliance.
Whistleblower Protection Rule
The SEC’s whistleblower protection rule, Rule 21F-17, prohibits any person or entity from taking action to impede an individual from communicating directly with SEC staff about a possible securities law violation.
Not only does this rule apply to the use of restrictive agreements, policies, and procedures, but the SEC has charged violations where an individual’s conduct or actions impeded or attempted to impede another from reporting to the SEC.
SEC Charges CBRE, Inc.
On September 19, 2023, the SEC announced that it reached a $375,000 settlement with CBRE, Inc., a Dallas-based commercial real estate services and investment firm, for its use of confidential agreements to violate employees’ protection under the whistleblower protection rule.
This case stems from CBRE, Inc.’s actions between 2011 to 2022, during which time it required its employees to sign a document certifying that they had not filed a federal complaint against the company. This requirement was a condition for receiving separation pay. It was determined that this violated the whistleblower protection rule, as it was an illicit initiative to stop employees from communicating with the SEC.
The SEC announced and commended CBRE Inc.’s cooperation with its investigation and its extensive remedial action, which included revising its agreements to ensure compliance with the whistleblower protection rule.
“It is critical that employees are able to communicate with SEC staff about potential violations of the federal securities laws without compromising their financial interests or the confidentiality protections of the SEC’s whistleblower program,” Eric Werner, Regional Director of the SEC’s Fort Worth Office.
SEC Charges Monolith Resources
On September 23, 2023, the SEC announced that it reached a $225,000 settlement with Monolith Resources following charges due to its violation of the whistleblower protection rule.
Monolith Resources was charged by the SEC for utilizing employee agreements that required certain departing employees to waive their rights to monetary whistleblower awards in connection with filing claims with or participating in investigations by government agencies.
“Any attempt to stifle or discourage this type of communication undermines our regulatory oversight and will be dealt with appropriately,” Jason J. Burt, Regional Director of the SEC’s Denver Office.
Takeaways for Employers
It is important for employers to understand that state and federal courts, as well as labor boards and commissions, have presented a strong consensus, as they continue to invalidate employment agreements where employees waive their rights for an incentive, such as severance pay or severance benefits, or out of fear for lack thereof.
Employers and their hiring departments should review current policies and practices to ensure they have not asked employees to waive their rights in exchange for employment or severance benefits.
