SEC’s Office of the Whistleblower Warns Companies and Inside Counsel Against Using Employment Incentives to Deter External Whistleblowing

by Eversheds Sutherland (US) LLP

During a recent panel discussion at the Georgetown University Law Center’s 18th Annual Corporate Counsel Institute, the head of the U.S. Securities and Exchange Commission’s Office of the Whistleblower, Sean McKessy, warned companies and their in-house counsel against drafting employment contracts that discourage employees from reporting potential violations of the securities laws to agency regulators. Mr. McKessy explained that efforts to tempt employees with rewards for keeping certain kinds of information confidential may run afoul of federal law, and both the company and the drafting attorney could face serious consequences.

The SEC Whistleblower Program is a product of the Dodd-Frank Wall Street Reform and Consumer Protection Act 1and a response to public criticism of the SEC after the discovery of Bernard Madoff’s multi-billion-dollar Ponzi scheme. Under Dodd-Frank, this program allows eligible whistleblowers who report potential securities violations to the SEC to collect a bounty of up to 30% of any monetary sanctions collected as a result of the whistleblower’s tip.2 To protect these whistleblowers from adverse employment actions and further encourage tips, Dodd-Frank also prohibits employers from discharging, demoting, suspending, threatening, harassing, or discriminating against a whistleblower for engaging in protected activity.3

Although Dodd-Frank thus unequivocally prohibits punishing an employee for engaging in protected whistleblowing activity, it is less clear whether the Act also prohibits employers from encouraging confidentiality or internal reporting (as opposed to external whistleblowing) through the use of financial rewards or other positive incentives.

Mr. McKessy’s remarks at the Corporate Counsel Institute, however, could be interpreted to suggest that the Office of the Whistleblower is actively looking to combat any form of incentive that might discourage employees from coming forward and bringing information to the SEC. Specifically, Mr. McKessy mentioned confidentiality agreements, separation agreements, and other employment agreements that condition the employee’s receipt of a financial reward on his or her agreement to refrain from sharing information with the SEC or other regulatory agencies.

Mr. McKessy also warned that the SEC would target not only employers that incorporate these incentive provisions into their employment agreements, but also the lawyers who draft them. In particular, Mr. McKessy noted the power to revoke an attorney’s ability to practice before the SEC and told the audience that his office is “actively looking for examples” of contractual language that runs afoul of the SEC’s broad interpretation of Dodd-Frank’s anti-retaliation provision.

In light of fears that Dodd-Frank’s whistleblower bounties would encourage a proliferation of unfounded tips, many employers have tried to balance their obligations under the new law with legitimate interests in protecting proprietary or confidential information and preserving the integrity of their internal compliance programs. Given Mr. McKessy’s recent comments — and the fact that his office now receives an average of nine or ten whistleblower tips a day — companies and their inside counsel should carefully review their employment agreements to identify any provisions that could be construed as incentives to avoid sharing information with the SEC. Until the courts have definitely answered lingering questions about the scope of Dodd-Frank’s anti-retaliation provision, the risks of including such a provision may very well outweigh its benefits.

1 Pub. L. No. 111-203, 124 Stat. 1376 (2010).

See generally 15 U.S.C. § 78u-6(b) (2010).

3 See generally id. § 78u-6(h).



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.

© Eversheds Sutherland (US) LLP | Attorney Advertising

Written by:

Eversheds Sutherland (US) LLP

Eversheds Sutherland (US) LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.