The SEC fined a public company $265,000 because its severance agreements contained provisions limiting potential whistleblowers. According to the SEC, the respondent violated the Dodd-Frank’s Whistleblower provisions by including severance provisions that restricted the provision of confidential information to regulatory authorities or requiring employees to forego award payments in order to keep their severance payments. The order requires the firm to include severance language that specifically permits employees to share information when filing a charge or complaint, or cooperating with, a government agency.
OUR TAKE: Every public company and registrant should insert this new whistleblower exception paragraph in every severance agreement executed after Dodd-Frank. While we certainly understand the policy reason for prohibiting restrictive severance agreements, we also wonder about the unintended consequences on senior managers who may become less likely to share information with subordinates.