For the second time in two days, the SEC cracked down on restrictive employee severance agreements that purport to limit the ability of former employees to communicate with the Commission. In this case, the SEC hit SandRidge Energy, Inc. with a $1.4 million civil penalty for violating Exchange Act Rule 21F-17, and entered a cease and desist order prohibiting future violations. SandRidge agreed to settle the charges without admitting or denying the SEC findings.
The severance agreement used by SandRidge from at least August 2011 to April 2015 prohibited former employees from cooperating with any governmental agency in any complaint or investigation concerning the company. The provision expressly stated that former employees could not voluntarily contact any government agency concerning any complaint or investigation pertaining to the company. The form agreement also prohibited employees from using or disclosing any confidential or proprietary information to any other person or organization, including governmental agencies, without the company’s prior written consent. Finally, the agreement provided that employees could not “at any time in the future defame, disparage or make statements or disparaging remarks” that could damage the company’s reputation or that of any of its officers, directors or other specified persons or entities.
While SandRidge would on occasion modify the restrictive language in response to a specific request from an employee, the company continued to use the standard form agreement in many cases. From August 2011 through April 2015, approximately 546 former employees signed separation agreements that contained at least some of these provisions, and approximately 240 other employees received a form with all or some of these provisions attached to their employment agreements.
As part of a planned reduction in force, SandRidge entered into approximately 113 separation agreements on or after April 1, 2015, the day the SEC announced its first enforcement action against KBR charging violations of Rule 21F-17. After becoming aware of the SEC’s enforcement action, SandRidge asked its outside employment counsel to revise its standard form separation agreement, but the company did not change the language in the separation agreements used for the ongoing reduction in force. The SEC noted that many of the improper separation agreements were in place, and that employees executed a large number of agreements, during periods when the SEC was actively investigating SandRidge.
The matter culminated when the company dismissed an internal whistle-blower who regularly raised concerns about the process used by SandRidge to calculate its publicly-reported oil and gas reserves. According to the SEC order, management stated that they could replace the whistle-blower with someone “who could do the work without creating all of the internal strife.”The employee’s separation agreement also contained the prohibited restrictive language.
In the release adopting Rule 21F-17, the SEC stated that an “attempt to enforce a confidentiality agreement against an individual to prevent his or her communications with Commission staff about a possible securities law violation could inhibit those communications even when such an agreement would be legally unenforceable, and would undermine the effectiveness of the countervailing incentives that Congress established to encourage individuals to disclose possible violations to the Commission.”
Jane Norberg, Chief of the SEC’s Office of the Whistleblower, stated that "whistleblowers who step forward and raise concerns internally to their companies about potential securities law violations should be protected from retaliation regardless of whether they have filed a complaint with the SEC."
The settlement is subject to approval by the Bankruptcy Court for the Southern District of Texas.
In the Matter of SandRidge Energy, Inc., SEC Release No. 34-79607 (Dec. 20, 2016).
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)