Companies Should (Again) Review Releases They Sign With Departing Employees—The SEC Is Not Going To Lose Interest In This Issue


Implications of Two Recent SEC Enforcement Actions: CBRE, Inc. and Monolith Resources, LLC

The U.S. Securities and Exchange Commission (“SEC”), in a couple of recent settled actions, continues to warn companies that the practice of requiring departing employees to sign comprehensive releases in return for separation benefit packages—which makes sense from a risk mitigation standpoint—comes with an important caveat: a company must not include in such releases language that might cause a former employee to hesitate to inform the SEC (or other government agencies) about potential violations they observed while employed by the company. It’s time (once again) for companies to review the language in their releases.

The SEC’s authority in this area derives from the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) which, among other things, amended the Exchange Act by adding Section 21F, “Securities Whistleblower Incentives and Protection.” This amendment was intended to encourage whistleblowers to report possible securities law violations by providing financial incentives and confidentiality protections. See Implementation of the Whistleblower Provisions of Section 21F of the Securities Exchange Act of 1934 Adopting Release, Release No. 34-64545, at 197 (Aug. 12, 2011) (“Adopting Release”). Among the rule changes implemented by the SEC, the Commission adopted Rule 21F-17(a) under the Exchange Act, which states, “[n]o 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.”

First Enforcement Action in 2015

The SEC’s first enforcement action that based a violation of Rule 21F-17(a) on a company’s use of a restrictive confidentiality agreement was in April 2015. In the Matter of KBR, Inc., Exchange Act Rel. No. 74619 (April 1, 2015). That first action was based on the use of a form confidentiality statement KBR required its employees to sign at the outset of an interview during internal investigations into potential illegal or unethical conduct by the company or its employees. The statement included the following language:

I understand that in order to protect the integrity of this review, I am prohibited from discussing any particulars regarding this interview and the subject matter discussed during the interview, without the prior authorization of the Law Department. I understand that the unauthorized disclosure of information may be grounds for disciplinary action up to and including termination of employment.

Id. ¶ 6. The SEC’s Order conceded that there was no evidence that any KBR employee had ever been prevented from communicating with the SEC or that KBR had ever taken any steps to enforce the terms of the agreement. Nevertheless, the SEC concluded that the language of the confidentiality statement “impedes such communications by prohibiting employees from discussing the substance of their interview without clearance from KBR’s law department under penalty of disciplinary action including termination from employment.” Id. ¶ 7. Accordingly, the language undermined the purpose of Section 21F and violated Rule 21F-17(a). KBR was required to cease and desist from committing or causing violations of the Rule, pay a monetary penalty of $130,000, and amend its confidentiality statement to make it clear that nothing in the statement prohibited employees from reporting possible violations of federal law or regulation to any government agency or entity, including the Department of Justice, SEC, Congress, and any agency Inspector General, or making other disclosures protected under any federal whistleblower provision.

Since the KBR matter, there have been many other actions involving violations of Rule 21F-17(a). See, e.g. In re Guggenheim Securities LLC, Exchange Act Release No. 92237 (June 23, 2021) (compliance manual required employees to obtain approval from the firm's legal or compliance department before initiating contact with SEC); In re SandRidge Energy, Inc., Exchange Act Release No. 79607 (Dec. 20, 2016) (form employment separation agreement prohibited former employees from voluntarily cooperating with government agencies in any complaint or investigation concerning the company or disclosing confidential company information to a government agency—the SEC’s Order noted that several company employees and officers had requested that the company modify the language after the SEC adopted Rule 21F-17); In re BlueLinx Holdings Inc., Exchange Act Release No. 78528 (Aug. 10, 2016) (company severance agreement prohibited former employees from sharing confidential information about the company that the employee had learned while employed unless compelled to do so by law).

Why the Continued SEC Interest?

The SEC’s interest in this area remains unflagging, probably because, as is often noted, the tips and referrals received from whistleblowers have become a major source of leads for successful enforcement investigations. See, e.g., 2022 Annual Report to Congress on the Dodd-Frank Whistleblower Program (Nov. 15, 2022) (“2022 Annual Report”). The SEC’s 2022 Annual Report noted:

Whistleblowers have played a critical role in the SEC’s enforcement efforts in protecting investors and the marketplace. Enforcement actions brought using information from meritorious whistleblowers have resulted in orders for more than $6.3 billion in total monetary sanctions, including more than $4.0 billion in disgorgement of ill-gotten gains and interest, of which more than $1.5 billion has been, or is scheduled to be, returned to harmed investors.

The Commission also received a record high number of whistleblower tips alleging wrongdoing. In FY 2022, the Commission received over 12,300 whistleblower tips—the largest number of whistleblower tips received in a fiscal year.

Id. at 1. With that context, companies should expect that the SEC will continue to crack down on attempts to limit disclosures by current or former employees, as demonstrated by the two most recent cases in the SEC’s pantheon of Rule 21F-17(a) enforcement actions.

Monolith Resources, LLC

Monolith Resources, LLC (“Monolith”), is a 236-employee Nebraska-based clean technology company that produces hydrogen and carbon related products. See In re Monolith Resources, LLC, Exchange Act Release No. 98322 at 1 (Sep. 8, 2023). Monolith routinely entered into separation agreements with departing employees that, while stating “nothing in this agreement is intended to limit in any way your right or ability to file a charge or claim with any federal, state, or local agency,” but also contained the following language:

These [governmental] agencies have the authority to carry out their own statutory duties by investigating charges or claims, issuing determinations, filing lawsuits in their own name or taking other action authorized by statute. You retain the right to participate in any such action, but not the right to recover money damages or other individual legal or equitable relief awarded by any such governmental agency.

Id. at 2-3 (alteration in original). The SEC found the separation agreements’ language prohibiting the right to share in financial incentives problematic:

Monolith’s separation agreements raised impediments to participation in the Commission’s whistleblower program by having the employees forego the critically important financial incentives that are intended to encourage persons to communicate directly with the Commission staff about possible securities law violations. Such restrictions on accepting financial awards for providing information regarding possible securities law violations to the Commission undermine the purpose of Section 21F and Rule 21F-17(a), which is to “encourage[e] individuals to report to the Commission,” [Adopting Release at p. 201], and violate Rule 21F17(a) by impeding individuals from communicating directly with the Commission staff about possible securities law violations.

Id. at 3 (alteration in original). Upon learning of the SEC’s investigation, Monolith voluntarily revised its separation agreements to make clear that former employees would not be limited by their agreements to obtain an incentive award in connection with presenting information to government agencies. The revised agreements provide that “nothing in this Agreement shall bar or impede in any way your ability to seek or receive any monetary award or bounty from any governmental agency or regulatory or law enforcement authority in connection with protected ‘whistleblower’ activity.”

Although, like KBR, the SEC did not find that any employees had actually failed to report violations due to the separation agreement’s language, Monolith was still found to have violated Rule 21F-17(a), ordered to cease and desist from future violations, and required to pay a monetary penalty of $225,000. The amount of the penalty was larger than KBR’s and, in light of the vastly different sizes of the two companies, no doubt represented a far larger burden on Monolith’s financial position.

Although the Order does not discuss this, Monolith’s separation agreement language may represent an instance of being “too clever by half.” On the one hand, Monolith’s agreement explicitly did not forbid former employees from reporting violations to government agencies while, on the other hand, purporting to remove former employees’ financial incentives for doing so. Although Monolith would likely have found it difficult to enforce its separation agreement language against former employees, this approach clearly backfired when the SEC learned about it, leading to an expensive and wasteful (from the company’s perspective) investigation, negative publicity, a stiff penalty, and an embarrassing public disclosure of its violative conduct.

CBRE, Inc.

CBRE, Inc. (“CBRE”) is a Texas-based commercial real estate services and investment firm with 35,000 employees that is a wholly-owned subsidiary of CBRE Group, Inc., which has common stock registered with the SEC and is listed on the New York Stock Exchange. See In re CBRE, Inc., Exchange Act Release No. 98429 at 2 (Sep. 19, 2023). CBRE regularly entered into separation agreements with departing employees who will receive a separation pay package. These agreements contained the following language:

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.

Id. at 3. The agreements could not be executed prior to the employee’s termination date. Accordingly, the SEC found that read together, the agreement’s terms required that the employee certify that they had not filed a complaint or charges based either on events spanning the employee’s entire employment with CBRE or events occurring between termination and executing the agreement. This impeded potential whistleblowers from reporting complaints to the SEC.

The following paragraph of the agreement, added in 2015, did not address the SEC’s concerns:

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.

Id. According to the SEC’s Order, “[r]ead together with the Employee Representation, this carve-out was prospective in application, and therefore did not remedy the impeding effect of the Employee Representation.” Id.

Even though the SEC was not aware that any of the 884 CBRE employees who signed the separation agreement in 2021 and 2022 were prevented from reporting concerns about potential securities law violations with the SEC, or that CBRE took any action against any former employee based on the agreement, the agreement’s language constituted a violation of Rule 21F-17(a).

The SEC acknowledged that CBRE took extensive remedial action, including:

  • Amending its agreements promptly upon learning of the SEC’s investigation;
  • Auditing similar agreements worldwide in its affiliates in 54 different countries;
  • Upgrading global policy documents for compliance with the Rule;
  • Training compliance teams globally on the Rule;
  • Modifying over 300 agreements and policy templates in 61 countries in a dozen different languages;
  • Requiring over 100,000 employees worldwide to take updated standards of business conduct training;
  • Requiring employees to certify that they understood they were not limited in their ability to communicate with any government agency without notice or approval from CBRE;
  • Notifying the 884 employees who signed agreements in 2021 and 2022 that they were not under any restriction from communicating with the SEC about potential violations of the federal securities laws; and
  • Cooperating in the SEC’s investigation.

Id. at 4. Notwithstanding CBRE’s remedial actions, the SEC found that CBRE violated Rule 21F-17(a), ordered the company to cease and desist from future violations of the Rule, required payment of a $375,000 monetary penalty, and noted that the penalty was not higher only because of CBRE’s extensive cooperation in the SEC’s investigation.


At this point, following more than seven years of enforcement actions regarding separation agreements, it should be very clear to companies that they must not include in such agreements any language that could be interpreted as discouraging or restricting an employee’s ability to communicate with the SEC or other government agencies about potential violations of law or regulation.

The fact that a company may ask that an employee forgo certain personal claims against the company in return for a separation package does not empower a company to use this leverage to insulate itself from the employee potentially reporting violations to government agencies and receiving monetary incentives for doing so. In fact, attempting to stifle such reports might represent a violation of public policy and a corporation’s obligation to obey the law even if the SEC’s Rule 21F-17(a) had not been enacted.

The existence of the Rule, however, means that any company that attempts to circumvent its application is simply inviting an excruciating investigation and all the attendant expense, exposure, and embarrassment that follows.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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