The SEC brought an enforcement action against The Brink’s Company for using confidentiality agreements that the SEC alleged violated Exchange Act Rule 21F-17. That rule prohibits any person from taking any action to impede an individual from communicating directly with the Commission, including by “enforcing, or threatening to enforce, a confidentiality agreement….” The SEC has brought at least nine other similar enforcement actions in the past.
One of Brinks’ forms prohibited employees from divulging confidential information about the company to any third party without the prior written authorization of a Brinks, Inc. executive officer. The agreement defined “Confidential Information” broadly to include information about “current and potential customers, . . . prices, costs, business plans, market research, sales, marketing, . . . operational processes and techniques, [and] financial information including financial information set forth in internal records, files and ledgers or incorporated in profit and loss statements, financial reports and business plans. . . ,” The SEC notes that the reference to financial records often are components of whistleblower complaints.
The SEC stated that Brinks in-house attorneys received general client bulletins, legal alerts, and case summaries from various private law firms discussing the Commission’s enforcement actions charging violations of Rule 21F-17(a). According to the SEC, a partner at Brinks U.S.’s outside employment counsel, sent an email to the company’s General Counsels and other lawyer attaching a “Client Memo” that described the Commission’s initial Rule 21F-17 enforcement action, cited key findings from the Commission’s order, predicted that the Commission would be bringing more cases enforcing Rule 21F-17, and recommended that public companies consider incorporating into their employment agreements certain whistleblower carve-out language apparently copied verbatim from the order.
While Brinks eventually adopted whistleblower carve-outs into its severance agreements, the general confidentiality agreement was not modified.
Brinks agreed to pay a $400,000 civil monetary penalty to the SEC and agreed to certain injunctive relief. Brinks did not admit or deny the SEC’s findings.
SEC Commissioner Hester M. Peirce issued a statement stating she believed the settlement exceeded the SEC’s authority. Ms. Peirce objected to the requirement that Brinks’ employment agreement include the following provision:
Protected Rights. Employee understands that nothing contained in this Agreement limits Employee’s ability to file a charge or complaint with the Securities and Exchange Commission, or any other federal, state, or local governmental regulatory or law enforcement agency (“Government Agencies”). Employee further understands that nothing in this Agreement limits Employee’s ability to communicate with any Government Agencies or otherwise participate in or fully cooperate with any investigation or proceeding that may be conducted by any Government Agency [sic], including providing documents or other information, without notice to or approval from the Company. Employee can provide confidential information to Government Agencies without risk of being held liable by Brinks for liquidated damages or other financial penalties. This Agreement does not limit Employee’s right to receive an award for information provided to any Government Agencies.
Ms. Peirce objects to the text which expands the whistleblower protection beyond the SEC rules to include other government agencies. She stated the Commission’s authority to adopt and enforce Rule 21F-17 necessarily is limited to the scope and purpose of Exchange Act Section 21F, which is to ensure the free flow of information to the Commission.
Ms. Peirce noted that even though Brinks agreed to this provision of the settlement that should not be misconstrued as an indication that other companies are under any obligation to use the same or similar language to avoid running afoul of Rule 21F-17.