In a recently settled administrative proceeding, the Securities and Exchange Commission took the position that an employer took action to impede potential whistleblowers when as a condition of receiving separation pay, the employer required its employees to sign a release in which employees attested that they had not filed a complaint against the employer with any federal agency. The SEC took the position that requesting such a representation violated Rule 21F-17 which provides in relevant part:

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 (other than agreements dealing with information covered by § 240.21F–4(b)(4)(i) and § 240.21F–4(b)(4)(ii) of this chapter related to the legal representation of a client) with respect to such communications.

The rule forbids actions that "impede". To impede means to hold up or to block. See United States v. Montgomery, 578 F. Supp. 3d 54, 70 (D. D.C. 2021). The verb is derived from the Latin word impedire which means to shackle.

Thus, the SEC's interpretation would appear to require a logical impossibility - an after the fact action (i.e., asking for a representation) impeding potential earlier action. Importantly, the offending language did not prohibit employees from filing complaints after signing the release. These releases, moreover, could only be signed by an employee after termination of employment.

More generally, the SEC's action is yet another example of its penchant for rulemaking by enforcement. Rule 21F-17 says nothing about asking a former terminated employee whether he or she previously filed a complaint with any federal agency. Clearly, it would have possible to include such a prohibition in the rule when it was adopted, but the SEC for whatever reason did not. If the SEC later determined that such requests were problematical, it could have proposed an amendment. In either case, compliance with the rulemaking provisions of the Administrative Procedure Act would both provide prior notice to the public and an opportunity to comment.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.