Over the past several years, legal counsel has urged employers to add language to release agreements used with employees to make clear that nothing in those documents will act to prevent an employee or former employee from filing a complaint with a government agency. Those changes were prompted by administrative positions taken by the EEOC and later the NLRB that considered failure to advise employees of these rights as a form of retaliation.

In response, employers typically added the notice provision, but also included language that advised employees that while they were free to make such complaints, the release precluded them from obtaining a personal monetary recovery. In recently reported settlements, the Securities and Exchange Commission obtained a $340,000 and $250,000 penalty from publically-traded companies for use of employee release agreements containing these monetary disclaimers.

According to the SEC, those provisions violate Rule 21F-17 issued under Section 21F of the Securities and Exchange Act of 1934 as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act. Specifically, the SEC now interprets Rule 21F-17 as prohibiting covered employers from telling employees that they are not eligible to receive whistleblower rewards for reporting securities violations. According to the SEC, employees must be advised of their continuing right to make such complaints, and cannot be required to disclaim their right to such rewards in return for benefits received through a release with the employer.

Employers subject to SEC regulation should immediately check their standard release agreements to make sure they are not using the offending language. The provisions regarding the employee’s continuing right to make complaints should be broadened to include any government agency. While the SEC primarily regulates publically traded companies, in some situations its jurisdiction can extend to privately held companies. The SEC has not expressed any position on whether this new position also applies to such private companies.

In certain circumstances, the SEC’s position on this issue may remove an employer’s incentive to enter into a settlement agreement with a departing employee. In the absence of an ability to disincentivize an employee from complaining for personal gain, the employer may decide that there is little purpose in paying for a release that cannot exclude this possibility.