The SEC Strikes Back Again on Whistleblower Pretaliation

Compliance officers need to take a look at severance agreements. The Securities and Exchange has blown up another company for including provisions in its severance agreements that may have impeded employees from communicating information to the SEC.

NeuStar Inc. used severance agreements that contained a broad non-disparagement clause forbidding former employees from engaging “in any communication that disparages, denigrates, maligns or impugns” the company. Former employees could be compelled to forfeit all but $100 of their severance pay for breaching the clause.

In response to Dodd-Frank, the SEC adopted Rule 21F-17 in August 2011, which provides:

(a) No person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement . . . with respect to such communications.

Among the investors, customers, competitors and other parties listed in the non-disparagement clause, NeuStar specifically included the Securities and Exchange Commission. That makes it a bad agreement and in violation of Rule 21F-17. From August 2011 to May 21, 2015, NeuStar used the bad severance agreement for 246 employees. The SEC order indicates that at least one ex-employee wanted to talk to the SEC, but was impeded by the agreement.

This is the third pretaliation case from the SEC, following up on KBR and BlueLinx.

In each case, the offending company was required to reach out to the ex-employees and let them know that the company was not preventing them from talking to the SEC. It seems clear that the compliance officers may want to spend some time this holiday season looking through their severance agreements to see if they could be construed as limiting the employees from talking to the SEC. If so, you may want to send a holiday card granting those employees a holiday wish to talk to the SEC.

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