Alternate Act Rule 21F-17, adopted in 2011 beneath the auspices of the Dodd-Frank Wall Street Reform and Shopper Security Act of 2010, prohibits any specific particular person from taking any movement to impede an individual from talking straight with the SEC, along with by “implementing , or threatening to implement, a confidentiality settlement . . . .” The SEC has prioritized implementing this rule expansively, by requiring employers to provide SEC-specific carveouts to insurance coverage insurance policies and agreements governing confidentiality. In response to an Order issued last week in direction of The Brink’s Agency (“Brink’s” or “Brinks”), the SEC seems to counsel that employers ought to current a specific carveout in restrictive covenant agreements permitting workers and former workers to report information to the SEC together with the statutory disclosure supplied for throughout the federal Defend Commerce Secrets and techniques and methods Act (DTSA).
The DTSA requires employers to provide uncover of whistleblower immunity “in any contract or settlement with an employee that governs the utilization of a commerce secret or completely different confidential information.” The uncover ought to inform workers that:
An individual shall not be held criminally or civilly liable beneath any Federal or State commerce secret laws for the disclosure of a commerce secret that—(A) is made—(i) in confidence to a Federal, State, or native authorities official, each straight or circuitously, or to an authorized skilled; and (ii) solely for the purpose of reporting or investigating a suspected violation of laws; or (B) is made in a criticism or completely different doc filed in a lawsuit or completely different persevering with, if such submitting is made beneath seal.
The penalty for noncompliance with this requirement is that an employer is just not going to be entitled to recuperate a variety of damages and attorneys’ prices beneath the DTSA throughout the event of misappropriation by an employee who is not going to be so notified. Consequently, most employers now current this language in restrictive covenants agreements that embrace confidentiality requirements. These that do not accomplish that’s not going to be entitled to a variety of damages and attorneys’ prices beneath the DTSA, nevertheless there aren’t any civil penalties for failing to include this uncover.
The SEC’s Order issued in direction of Brink’s finds the above DTSA language insufficient and requires Brink’s to include additional language in its confidentiality agreements with workers that significantly references the SEC. Significantly, in its June 22, 2022 Order, the SEC launched that, with out admitting or denying any wrongdoing, Brink’s had agreed to pay $400,000, consented to the issuance of a cease and desist order discovering that it violated Rule 21F-17(a) , and amended its agreements with US-based workers to include the following new provision that outlines the workers’ rights beneath Rule 21F-17(a):
Protected Rights. Employee understands that nothing contained on this Settlement limits Employee’s capability to file a value or criticism with the Securities and Alternate Price, or each different federal, state, or native governmental regulatory or laws enforcement firm (“Authorities Firms”). Employee further understands that nothing on this Settlement limits Employee’s capability to talk with any Authorities Firms or in some other case participate in or completely cooperate with any investigation or persevering with that might be carried out by any Authorities Firm [sic], along with providing paperwork or completely different information, with out uncover to or approval from the Agency. Employee can current confidential information to Authorities Firms with out hazard of being held liable by Brinks for liquidated damages or completely different financial penalties. This Settlement would not prohibit Employee’s correct to acquire an award for information supplied to any Authorities Firms.
In addition to, Brink’s agreed to contact all current and former workers who signed the noncompliant agreements and provide them with a duplicate of the SEC’s Order and an announcement outlining their approved rights.
This bought right here in response to findings by the SEC that from a minimum of 2015 to 2019, Brink’s required its workers to sign restrictive covenants agreements that included noncompetes and confidentiality provisions that prohibit workers from disclosing any financial or enterprise information to third occasions, nevertheless did not embody any carveouts for potential SEC whistleblowers. Comparatively, Brink’s required prior approval sooner than disclosing such information to any third occasions, and any employee who didn’t regulate to this requirement could be matter to $75,000 in liquidated damages, plus attorneys’ prices. In response to the SEC:
By requiring current and former workers to tell the company earlier to disclosing any financial or enterprise information to any third occasions, and threatening them with liquidated damages and approved prices in the event that they did not accomplish that, Brinks took movement to impede potential whistleblowers by forcing these workers to determine on between determining themselves to the company as whistleblowers or most likely having to pay $75,000 and the company’s approved prices.
Not all SEC Commissioners agreed with the breadth of the Order, nonetheless. Following its issuance, Commissioner Hester M. Peirce issued an announcement on the SEC’s web page throughout which she agreed with the discovering that Brink’s violated Rule 21F-17(a), nevertheless disagreed with the cures that transcend the “restricted scope” of the SEC’s authority. Significantly, Commissioner Peirce took issue with the breadth of the model new provision Brink’s was required to include in all new agreements with US-based workers on account of it is not solely references an employee’s correct to file a value or criticism with the SEC, however moreover with “each different federal, state, or native governmental regulatory or laws enforcement corporations.” In response to Commissioner Peirce:
The Price plainly lacks statutory authority to impose such a broad requirement, and Rule 21F-17 would not purport to say such authority. I acknowledge that the Order states that Brinks’ settlement to this enterprise was merely a consideration when determining whether or not or to not simply settle for the company’s present of settlement. The Price, nonetheless, need to be cautious about using the settlement course of to amass voluntary compliance with requirements that it lacks statutory authority to impose.
Commissioner Peirce went on, nonetheless, to make clear that the actual fact Brink’s had “agreed to notably broad language as part of a settlement should not be misconstrued as an indication that completely different corporations are beneath any obligation to utilize the similar or associated language to steer clear of working afoul of Rule 21F-17.” Further, the Order itself states: “The findings herein are made pursuant to Respondent’s Provide of Settlement and won’t be binding on each different specific particular person or entity on this or each different persevering with.”
No matter Commissioner Peirce’s misgivings, the Order follows an prolonged line of SEC enforcement actions requiring confidentiality agreements and insurance coverage insurance policies to provide SEC-specific carveouts. In 2015, the SEC launched an enforcement movement in direction of KBR alleging that language in KBR confidentiality agreements supplied to workers in reference to internal investigations stifled whistleblowing. Then in 2016, BlueLinx Holdings Inc. agreed to pay a penalty to the SEC in reference to confidentiality language in its severance agreements. In June 2021, the SEC fined Guggenheim Securities, LLC for sustaining a protection that it contended impeded potential whistleblowers from talking with the SEC by requiring workers to amass permission sooner than reporting securities violations. The SEC’s Order issued in direction of Brink’s represents the newest development on this improvement, this time discovering for the very first time {{that a}} failure to include carveout language expressly referencing the SEC in a post-employment restrictive covenant settlement constitutes a violation of Rule 21F-17.
Employers must take heed of the SEC’s place {{that a}} failure to include a specific carveout in a confidentiality provision referencing an employee’s correct to disclose information to the SEC is a violation of Rule 21F-17 and can matter employers to substantial fines and penalties. And as we now have beforehand reported, states are beginning to require associated carveouts for claims of discrimination, sexual harassment, and the like.
Please attain out to any member of EBG’s Commerce Secret & Employee Mobility and/or Whistleblowing and Compliance comply with groups, or your EBG relationship companion, to guage present agreements and insurance coverage insurance policies, and to provide updates that comply not solely with this SEC Order, however moreover fairly a number of present changes in state laws relating to noncompetes and completely different post-employment restrictive covenants.