Whistleblower Alert: SEC Slaps Employer with $265k Penalty for Common Severance Agmt Language

The SEC recently announced it imposed a six-figure penalty on an employer for including what is (or what used to be) garden-variety language in a severance agreement, for violating the whistleblower provisions of Dodd-Frank.

In an apparent effort to comply with prior guidance issued by the EEOC and NLRB, the provision at issue expressly permitted the departing employee to file charges or otherwise cooperate with administrative agencies -- notwithstanding a general release of all claims.

However, the language that triggered SEC scrutiny was a proviso that the departing employee disclaimed any right to monetary recovery resulting from complaints to/cooperation with a governmental agency.  That provision has been routinely used by employers in severance agreements, with the apparent approval of the EEOC and NLRB.

The SEC, however, disagrees.  According to SEC, the right to monetary recovery from whistleblower activities within the scope of Dodd-Frank cannot be waived.

The practical impact is that for employers covered by Dodd-Frank, the impossibility of securing a release of whistleblower claims will reduce the incentive to offer severance, and will result in increased litigation.

Expect a court challenge to the SEC's interpretation.

--Jonathan Nadler

--Jon Nadler, Eckert Seamans, Philadelphia