On September 8, 2023, the Securities Exchange Commission (“SEC”) issued an order declaring that an employer’s separation agreement with a departing employee cannot restrict the departing employee’s right to (1) communicate with governmental agencies, (2) provide information to governmental agencies, or (3) receive an incentive award for communicating or providing such information. Generally, a separation agreement is a type of contract between an employer and a former employee that outlines the rights and responsibilities of both parties following the employee’s departure.
This ruling in Monolith Resources, LLC addressed an employer who routinely included language in its separation agreements stating the departing employee does not retain “the right to recover money damages or other individual legal or equitable relief awarded by any such governmental agency.”
The SEC ruled restrictions such as these “undermine the purpose of Section 21F and Rule 21F-17(a), which is to ‘encourag[e] individuals to report to the [SEC],’ … and violate Rule 21F- 17(a) by impeding individuals from communicating directly with the [SEC] staff about possible securities law violations.”
This decision should forewarn all employers and business owners of the harsh penalties that could result from including such restrictive language. The SEC imposed a $225,000 civil money penalty against Monolith Resources and required the company to notify all former employees that their separation agreements did not limit their ability to exercise such rights.
If you have not reviewed your Separation / Severance Agreement recently, based upon this SEC ruling and rulings from the NLRB regarding non-disparagement and confidentiality provisions, and ever-changing state laws, you should speak with legal counsel to make sure that your separation / severance agreement complies with legal requirements.
If you need more guidance or information, contact the employment law attorneys at General Counsel, P.C. today at 703-556-0411, intake@gcpc.com, or use this Contact Us Form. Attorneys at General Counsel, P.C. specialize in labor and employment law and have experience working with businesses, non-profits, and individuals throughout the DC Metropolitan area and across Virginia, specifically in Fairfax County, Arlington, and Loudoun County.