According to whistleblower lawyer Erika Kelton, companies that fear Dodd-Frank whistleblower programs are aggressively trying to squash potential tips to the SEC through a practice the agency has dubbed "pre-taliation."
Kelton, a partner at law firm Phillips & Cohen LLP who recently helped one of her clients obtain the largest SEC whistleblower reward ever ($30 million), says that companies are attempting to intimidate employees from coming forward as whistleblowers in the first place by requiring employees to enter into confidentiality agreements, separation agreements and other employment agreements that may prevent or deter employees from doing so:
For example, aggressive employers have conditioned the payment of severance on requirements that the employee will not voluntarily provide and has not provided information about company business practices to regulators or enforcement authorities. Agreements also might require that the employee forfeit any whistleblower award he or she may receive. Although the inclusion of such terms in employment agreements may be unenforceable, they are intended for their more immediate effect: To gag whistleblowers.
Kelton credits Sean McKessy, Chief of the SEC's Ofice of the Whistleblower, with coining the word “pre-taliation" to describe such efforts by corporations. Last year, at Georgetown University Law Center’s Corporate Counsel Institute, McKessy warned corporations that the SEC viewed such conduct to be in violation of the SEC's Dodd-Frank’s whistleblower rules, particularly the anti-retaliation prohibitions of Rule 21F-17. Rule 21F-17 prohibits “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.”
In his remarks, McKessy warned corporations that the Office of the Whistleblower is “actively looking for examples of confidentiality agreements, separation agreements, [and] employee agreements” that condition benefits on not reporting activities to regulators such as the SEC. He also also reminded counsel who might draft such agreements that the SEC has the authority to bar lawyers from practicing before the Commission.
Last month, Kelton joined Joe Warin and John Chesley of law firm Gibson Dunn as panelists for an interesting webcast that I moderated on these and other whistleblower-related topics. You can watch the webcast below: