The confidentiality provision your business has been using for years probably needs to change. Most companies understand they cannot enter severance agreements that prohibit former employees from engaging in whistleblower activities. Rather than a full prohibition, many employers protect their operations by contractually removing the financial incentive for blowing the whistle by making severance payments contingent on the employee agreeing to not accept whistleblower awards. A savvy maneuver to accomplish a similar result.
The SEC has now put an end to this too. It recently fined Footlocker $148,000 because its separation agreements required that former employees waive their right to receive whistleblower awards. Per the SEC, Footlocker’s conduct was a violation of Rule 21F-17(a) of the Securities Exchange Act of 1934, which prohibits any person from taking any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation.
This fine sends a clear message. Contracts which purport to waive the right to accept whistleblower awards must change immediately. Considering Footlocker voluntarily stopped using its award waiver contracts years before it received the SEC’s fine, stopping now might not mean your business is safe. If you are using, or have used, confidentiality contracts which discourage whistleblower reporting in any way you should speak with your attorney about changing your contracts going forward and potentially amending your existing agreements. The attorneys at Cosgrove Simpson are here to help.