October 19, 2021

Volume XI, Number 292


October 18, 2021

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Confidentiality Agreements May Violate Dodd-Frank Act

The Securities and Exchange Commission has filed, and settled, its first administrative proceeding and enforcement action against an employer under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (DFA), based on the employer’s use of a form confidentiality agreement. The SEC asserted that certain language in the employer’s agreement could impede communications between employees and the Commission’s staff about securities law violations. 

Among other things, the DFA established the statutory framework for the SEC’s whistleblower program. After developing and implementing the program, the SEC said that it would turn its focus to employer agreements — whether separation agreements, confidentiality agreements, or other restrictive agreements — that may operate to bar or chill an employee from calling the Commission’s Whistleblower Program. 

Based on the enabling language of the DFA, the SEC adopted Rule 21F-17, which provides, in relevant part: 

(a) No 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.

In this first enforcement action, the confidentiality agreement at issue was used by the employer in connection with its internal investigations. The agreement reminded employees that they are not to discuss the interview or the subject matter of the interview without prior law department authorization. 

Under the terms of the settlement, the employer is required to contact employees who signed the form agreement over the past four years and clarify that they need not seek permission from the employer or its law department before communicating with any government agency or entity, including the Department of Justice, the SEC, the Congress, and any agency Inspector General regarding possible violations of federal law or regulation. 

Although many employers were aware of both the DFA rule and the SEC’s stated plan to enforce it prior to this development, it was unclear how the SEC would seek to enforce Rule 21F-17. This action , therefore, puts employers on notice that they should consider reviewing and, if necessary, revising, employee agreements (especially frequently used templates) that contain restrictive terms, including employment agreements, standalone confidentiality agreements, non-competition agreements, confidentiality policies within handbooks or codes of conduct, and confidentiality and non-disparagement provisions in separation agreements. 

Jackson Lewis P.C. © 2021National Law Review, Volume V, Number 92

About this Author

Richard J. Cino, Jackson Lewis, Corporate Governance Attorney, Contract Breach Lawyer
Office Managing Principal

Richard J. Cino is the Office Managing Principal of the Morristown and Monmouth County, New Jersey, offices of Jackson Lewis P.C. He is also Co-Leader of the Corporate Governance and Internal Investigations Practice Group.

Mr. Cino has a broad area of practice and responsibility with the firm. He acts as lead counsel on all aspects of employment litigation, including defending claims of whistleblowers under various state and federal laws including the Sarbanes-Oxley Act, sexual harassment, all types of discrimination,...

David R. Jimenez, Jackson Lewis, Title VII discrimination claims Lawyer, Fair Labor Standards Attorney

David R. Jimenez is a Principal in the Hartford, Connecticut, office of Jackson Lewis P.C. He is the Co-Chair of the firm’s Corporate Governance and Internal Investigations Practice Group.

Mr. Jimenez advises employers on complex matters and litigation including:

  • Class Action cases involving Title VII discrimination claims, the Fair Labor Standards Act, and matters related to contingent, temporary, and independent contractor workforce categorization;

  • ...
John Ella, Jackson Lewis, employment contracts attorney, trade secret lawyer, drug testing legal counsel, compete litigation law

V. John Ella is a Principal in the Minneapolis, Minnesota, office of Jackson Lewis P.C. He practices in all aspects of employment law and advises clients in the areas of employment contracts, handbooks, trade secret and non-compete litigation, drug testing law, privacy law, commission claims, defamation, sexual harassment claims, employment and housing discrimination, plant closings, ERISA benefits litigation, public accommodations under Title III of the Americans with Disabilities Act, wage and hour compliance, whistleblower and Sarbanes-Oxley claims, as well...

Joseph C. Toris, Confidentiality, non-competition agreement, restrictive covenants, Jackson LEwis Law Firm
Of Counsel

Joseph C. Toris is Of Counsel in the Morristown, New Jersey, office of Jackson Lewis P.C. He is experienced with complex issues surrounding employee disloyalty, enforceability of confidentiality and non-competition agreements, and other restrictive covenants. Mr. Toris regularly participates in emergent matters seeking to impose or defend against the imposition of restraints in the state courts of New Jersey.

He is also experienced with Sarbanes-Oxley issues including the defense of whistleblower claims under the Act. Mr. Toris also assists clients in the...