For the second week in a row, the Securities and Exchange Commission brought a “pre-taliation” charge against a company for bad provisions in its employee separation agreements. This time it was the real estate company CBRE that had a bad provision.
In response to a Congressional mandate in 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.
Back in 2016 the Securities and Exchange Commission filed a series of cases against companies that restricted departing employees from contacting government authorities. Some of the language the SEC found illegal was broad non-disparagement clauses that forbid former employees from engaging “in any communication that disparages, denigrates, maligns or impugns” the company. Companies responded by adding carve-outs that explicitly stated that employees could contact government regulators to reporting possible wrongdoing.
CBRE had an appropriate carve-out:
Nothing in this Agreement shall be construed to prohibit Employee from filing a charge with or participating in any investigation or proceeding conducted by the Equal Employment Opportunity Commission, National Labor Relations Board, the Securities and Exchange Commission, the Department of Justice, or a comparable federal, state or local agency.
What the SEC did not like is a representation earlier in the form separation agreement:
Employee represents and acknowledges [t]hat Employee has not filed any complaint or charges against CBRE, or any of its respective subsidiaries, affiliates, divisions, predecessors, successors, officers, directors, shareholders, employees, representatives or agents (hereinafter collectively “Agents”), with any state or federal court or local, state or federal agency, based on the events occurring prior to the date on which this Agreement is executed by Employee.
The SEC’s view was that the carve-out was prospective in application and did not fix the representation.
Last week’s whistleblower pre-taliation case against Monolith was clearly problematic. Allowing a complaint, but disallowing any financial rewards is clearly too cute and deters a whistleblower.
The CBRE language is not so obviously problematic. Some would argue that its fair to ask an employee if they’ve filed a complaint in the exit process.
If the form had a left a blank for an employee to fill in any exceptions to the representation, would that make the form okay? Probably not, based on this case. I think the case is trying to say that even asking if the employee has filed a complaint would be a deterrent and would violate Rule 21F-17.
Will these two be the last of the whistleblower cases form the SEC? The SEC’s fiscal year is fast approaching so we should expect a flurry of cases conclusions over the next week and a half..
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