Caution: Employment Agreements That Deter Whistleblowing Could Be Illegal

Sean McKessy, head of the Securities and Exchange Commission’s Office of the Whistleblower, this week warned in-house counsel against drafting employment contracts that discourage employees from reporting potential violations of securities laws to agency regulators. Contracts that create an incentive to refrain from sharing information with the SEC could run afoul of the Dodd-Frank Act, McKessy said, and both the company and the drafting attorney could face serious consequences. Attorneys with Sutherland Asbill & Brennan note that, while it’s clear that Dodd-Frank prohibits punishing an employee for whistleblowing, the parameters of what’s ruled out by way of incentives to refrain from whistlebloweing are murkier and “until the courts have definitely answered lingering questions about the scope of Dodd-Frank’s anti-retaliation provision, the risks of including such a provision may very well outweigh its benefits.”