On April 1, 2015, the Securities and Exchange Commission (“SEC”) gave a boost to corporate whistleblowers, reaching its first settlement with a company accused of stifling whistleblowing activity through the use of restrictive confidentiality agreements. In a statement announcing the settlement, the SEC issued a terse warning to all employers, cautioning them to “similarly review and amend existing and historical agreements that in word or effect stop their employees from reporting potential violations to the SEC.” The settlement is a reminder that employer agreements should be drafted carefully so they cannot be read as impeding an employee’s right to engage in statutorily protected whistleblower activity, or any protected activity.

The April 1 settlement pertains to Section 21F of the Securities Exchange Act of 1934, enacted in 2010 as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Congress intended Section 21F “to motivate those with inside knowledge to come forward and assist the Government to identify and prosecute persons who have violated the securities laws and recover money for victims of financial fraud.” To fulfill this congressional purpose, the SEC adopted Rule 21F-17, which prohibits companies from taking any action to impede whistleblowers from reporting possible securities violations directly to the SEC. This regulation provides in relevant part as follows…