We have alerted you on two prior occasions regarding the Securities and Exchange Commission (SEC) imposing substantial fines and other penalties based solely on “boilerplate” language commonly found in corporate severance agreements, settlement agreements and similar form documents that the SEC interprets as deterring whistleblower activity. August 2016; January 2017.

Last week, this relatively new government enforcement program took a new twist. BlackRock, Inc., a New York financial services firm, agreed to pay a $340,000 civil penalty and issue government approved notices to over 1,000 former employees based upon the following facts. See BlackRock.

BlackRock’s form Separation Agreement contained the following “boilerplate” language: 

To the fullest extent permitted by law… you waive any right to [the] recovery of incentives for reporting misconduct …

Probably anticipating that this language could draw scrutiny under the SEC’s new enforcement program, in March 2016 BlackRock revised its form Separation Agreement and deleted the above quoted language in its entirety. Even though BlackRock voluntarily took action to clean up its form Separation Agreement, it was nonetheless found in violation of Rule 21F-17 because it had used that Separation Agreement in its prior form in connection with the termination of 1,067 employees between October 2011 (the effective date of Rule 21F-17) and March 2016 (when the form Agreement was revised), supra. In addition to the resulting monetary penalties, BlackRock was required to issue notices to all 1,067 former employees who had signed the prior form Separation Agreement advising them that “BlackRock does not prohibit former employees from seeking and obtaining a whistleblower award from the Securities and Exchange Commission …” 

The BlackRock case raises the troublesome question of whether, to avoid the potential of an SEC enforcement action, a company needs to BOTH revise its standard form Agreement to remove language deemed impermissible by the SEC (see our two prior Alerts, supra), AND provide some form of notice to former employees who signed such Agreements after October 2011. Knowledgeable counsel may be able to assist companies in devising appropriate compliance strategies.