SEC and EEOC's Interest in Confidentiality Agreements

New York Law Journal

Who would have thought, a decade ago, that the Securities and Exchange Commission (SEC) would be a principal nemesis of employment lawyers and their clients, along with the Equal Employment Opportunity Commission and the U.S. Department of Labor?

In its 2014 report to Congress, the SEC Office of the Whistleblower (OWB) reported that since August 2011, it has received 10,193 whistleblower tips, and that in Fiscal Year 2014 alone, it received 3,620. Indeed, on its website, the OWB conveniently provides a link to a complaint form “TCR” (tip, complaint, referral) for filing whistleblower complaints.

Congress, under Section 922 of the Dodd-Frank Act, helpfully established a fund for the OWB, which it may use, among other things, to pay awards in whistleblower actions. There is no similar fund for the EEOC. While that agency can prosecute discriminators, they don’t have authority on their own to pay awards to plaintiffs. But the SEC does, and there is plenty of money in this fund—at the end of fiscal year 2014, the balance was nearly a half billion dollars.

The OWB isn’t limiting its solicitation to the United States. In its 2014 report to Congress, OWB states that, since the beginning of the Sarbanes Oxley whistleblower program, it has received whistleblower tips from individuals in 83 countries outside the United States. In fiscal year 2014 alone, the SEC received whistleblower submissions from individuals in 60 foreign countries, including (in order of the number of complaints) the United Kingdom, India, Canada, the People’s Republic of China, and Australia.

Of course, the number of whistleblower TCRs is dwarfed by the number of charges filed with the EEOC. Interestingly, though, in FY 2014, the number of EEOC charges (88,778) was nearly 5,000 less than the total filed in FY 2013 (93,727). A full 38,000 of those charges included claims of retaliation—not for blowing the whistle on fraudulent conduct, as under Dodd Frank, but for bringing claims of discrimination or harassment.

Notwithstanding the inversely proportionate filings and their differences in enforcement technique, the OWB and the EEOC share an interest in assuring that employers not restrain employees and other protected individuals from reporting alleged unlawful activities to either agency.

Rule 21F-17(a) under the Exchange Act provides that “[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.” The OWB has announced that it is “actively working with Enforcement staff to identify and investigate practices in the use of confidentiality and other kinds of agreements that may violate this Commission rule. We will continue to focus on agreements that attempt to silence employees from reporting securities violations to the Commission by threatening liability or other kinds of punishment.”

SEC Seeks Agreements

In pursuit of this goal, the SEC is presently seeking, from a number of companies, every confidentiality agreement, nondisclosure agreement, settlement agreement, and severance agreement the companies entered into with employees since Dodd-Frank went into effect.

The SEC is also seeking documents related to corporate training on confidentiality, as well as all documents that refer or relate to whistleblowing, and lists of terminated employees. The SEC wants to use these documents as evidence of retaliation. In the SEC’s view, these agreements can represent a form of systemic retaliation if they are overly broad and serve to silence would-be whistleblowers.

The danger of this enforcement is that the OWB is not going after only agreements that would affirmatively prohibit these kinds of complaints. In the view of OWB, agreements need to reaffirm the employees’ rights to bring these complaints in order for them to pass muster.

There are two key areas where these issues arise: in release agreements (which may be a part of settlements of active or threatened litigation, or as part of more generic severance agreements) and in internal policies regarding complaints of unethical or unlawful practices. These agreements and policies, then, need to expressly advise the employees that the release does not bar them from filing claims with enforcement agencies against the employer.

EEOC Approach

The EEOC has taken a similar approach. The EEOC has proactively attacked settlement agreements entered into between employers and employees or former employees. The EEOC has asserted in these cases that it can unilaterally challenge such agreements even without a charging party, with only a requirement that it have “reasonable cause” for proceeding in the action.

For example, in EEOC v. CVS Pharmacy,1 the EEOC sued CVS in the U.S. District Court of the Northern District of Illinois, alleging that several provisions of CVS’s standard release of claims violated Title VII because they allegedly interfered with employees’ rights to file administrative charges, communicate voluntarily, and participate in investigations with the EEOC and other fair employment practice agencies.

The provisions the EEOC challenged included clauses on cooperation, non-disparagement, non-disclosure of confidential information, the general release of claims, pending actions, and the covenant not to sue. The EEOC also noted that CVS’s standard separation agreement was five single-spaced pages, implying that the agreement could be too long and complicated to be understood by the individuals asked to sign the agreement.

The district court dismissed the case because the EEOC failed to engage in conciliation (settlement) procedures that the judge found were required by Title VII, and did not rule on CVS’s other arguments for dismissal.

However, in a footnote, the judge addressed CVS’s argument that the EEOC had not demonstrated that CVS engaged in unlawful discrimination or retaliation merely by including certain terms in the company’s form separation agreement. The judge stated that the EEOC’s attempt to expand the right to pursue a pattern and practice claim under Title VII beyond “acts of discrimination and retaliation” was without merit and that actual discrimination or retaliation had to be shown to establish a statutory violation.

In another footnote, the judge addressed CVS’s argument that the agreement included a carve-out protecting the right to file an administrative charge which undermined the EEOC’s claim of interference with protected rights. The judge noted that the general release contained an exclusion for “any rights that the Employee cannot lawfully waive” and the covenant not to sue included a carve-out for the employee’s right to participate in administrative proceedings and cooperate with such agency investigations.

The court termed “not reasonable” the EEOC’s argument that the exclusion allowing participation in administrative proceedings did not protect the right to file a charge. The court also stated that even if the agreement banned filing of charges, which it did not, then those provisions would merely be unenforceable and not constitute actionable resistance to Title VII.

Reviewing Agreements

The court’s dicta may provide comfort to employers faced with EEOC challenges to separation agreements, but it may or may not offer much comfort in the OWB’s current, aggressive efforts to rein in employer releases, which has not been tested in any court action.

Employers should therefore review separation agreements with an eye toward strengthening provisions preserving the employee’s right to file administrative charges or lawsuits. The rights should apply to any government agency charged with enforcement of any law, not just employment laws.

Similarly, internal policies should not require employees to bring legal or ethical concerns to the attention of the employer prior to, or instead of, to the attention of an enforcement agency. Some companies have gone so far as to affirmatively remind employees, in these documents, that they have the right to file claims regarding the employer’s business practices, not only with the SEC or OWB, but with the EEOC, the Department of Labor, or any other applicable enforcement entity.

Employers should continue to provide in their separation agreements that, despite the employee’s retention of the right to file a complaint, the employee is waiving the right to recover monetary damages or other individual relief in connection with any such charge.

Employers should freshly review any separation agreement provisions mandating cooperation with the employer in connection with litigation and proceedings in light of the OWB and EEOC’s more aggressive postures on these issues.


1 2014 U.S. Dist. LEXIS 142937 (N.D. Ill, Oct. 7, 2014)

Philip M. Berkowitz is a shareholder and U.S. co-chair of Littler’s International Law Practice Group. He is based in the firm’s New York City office.​ This article is reprinted with permission from the March 11, 2015 issue of the New York Law Journal. © ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.