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Recent Decisions by the SEC: Confidentiality Agreements

At the end of 2016, the Securities and Exchange Commission announced that it paid more than $20 million to a whistleblower who helped the SEC find fraud within a company where this person was employed. This was only the most recent award in a long and impressive track record that totals over $100 million that the SEC has paid to whistleblowers who have highlighted cases of securities fraud for the SEC to investigate. In fact, multiple other publicly held companies were forced to pay large settlements to employees who the companies had prohibited from sharing confidential information with the SEC.

Confidentiality Agreements and Whistleblowers

It is not unusual for companies to force employees to sign confidentiality agreements upon leaving the company. Not only does this prevent valuable information from reaching competitors but it also exists to prevent information from being leaked to the SEC that might place the company in legal jeopardy. In addition to the negative publicity, companies stand to lose millions of dollars in government penalties if the case isn't decided in their favor. Sometimes companies offer employees incentives not to disclose confidential information. In other situations, companies have powerful leverage over their employees to force them to agree to these confidentiality agreements.

The Dodd-Frank Act

The SEC has been highlighting Rule 21F-17 under the Securities and Exchange Act. This act was signed into law back in 1934 and was amended by the Dodd-Frank Act in recent years. The specific amendment to the Securities and Exchange Act is titled the "Whistleblower Incentives and Protection" act and creates financial incentives for people to report possible instances of securities fraud to the SEC. In the Dodd-Frank Act, companies are prohibited from taking actions that might prevent someone from communicating possible legal or financial violations with the SEC. This specifically includes a confidentiality agreement.

BlueLink Holdings and Confidentiality Agreements

Over several years, BlueLinx Holdings was adding confidentiality provisions in its severance agreements with employees. Each of these agreements violated the Dodd-Frank Act specifically because it prohibited employees from sharing information about the company unless either BlueLinx granted permission for the employee to do so or the employee was forced to do so by a court of law. These agreements violated the Dodd-Frank Act because the confidentiality agreements prevented employees from sharing information with the SEC. BlueLinx was forced to pay a large financial penalty.

Health Net Prevents Whistleblower Awards

Health Net was also forced to pay a large fine by the SEC because their agreements prevented employees from receiving awards from the SEC for being a whistleblower. Because these agreements specifically targeted the SEC, this also discourages people from reporting possible violations to the SEC and was ruled in violation of the Dodd-Frank Act as well.

An Experienced Attorney

Employer and employee relationships can be difficult to navigate, especially when non-disclosure agreements are involved. Before signing any contract that might involve a similar arrangement, it is important to seek the opinion of an experienced attorney to fully understand what the language entails.

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