Some leading US tech companies are forcing workers to sign allegedly illegal employment contracts, despite years of enforcement against the practice, according to complaints filed with the Securities and Exchange Commission.
companies including one Apple Inc subcontractors, Electronic Arts Inc. and block Inc. abused nondisclosure agreements that prohibit workers from reporting bad behavior to the SEC, according to whistleblower complaints viewed by Bloomberg News and filed with the agency by a law firm Kohn, Kohn & Colapinto LLP. Contracts that prohibit employees from disclosing confidential information to outsiders do not include an exemption for notifying regulators.
The allegations were made as the SEC, under Gary Gensler, stepped up enforcement of an agency rule stemming from the Dodd-Frank financial reform act. Under this rule are companies expressly prohibited prevent anyone from filing whistleblowing with the SEC. Enforcing the regulation is a top priority for Gurbir Grewal, the SEC’s enforcement director, according to a person familiar with his thinking, who asked not to be identified to discuss the agency’s internal policies.
A Block spokesman said the company’s Code of Conduct and Ethics provides protection for all employees when communicating with government agencies. This policy differs from an employment contract, which legal experts say should include exceptions for reporting misconduct to regulators. A spokesman for Electronic Arts declined to comment.
SEC whistleblower
Established in the wake of the 2008 financial crisis, the SEC’s whistleblower program has taken thousands of tips, handed out over $1 billion in bounty awards to whistleblowers, and has become one of the agency’s favorite tools to root out corporate wrongdoing. The persistence of restrictive non-disclosure agreements jeopardizes the agency’s efforts to hold companies accountable.
The agency has initiated 17 enforcement actions against companies for improper non-disclosure agreements since it began enforcing this practice in 2015. Five of these have been filed since President Joe Biden took office in 2021, compared to two during former President Donald Trump’s tenure. Most cases were brought during the Obama administration.
Former SEC chairman and Trump agent Jay Clayton said in an interview that he has brought cases where necessary to protect the rights of whistleblowers. “Companies should know how to make contracts legally compliant,” he said.
The contracts show a “willful disregard” of the law and SEC rules, given the public statements and numerous enforcement actions the agency has taken against such agreements, Kohn, Kohn & Colapinto wrote in a January complaint, which is one of those seen by Bloomberg was. The allegations related to 2022 employment contracts issued by Electronic Arts, one of the world’s largest video game publishers known for its Star Wars and sports games, and Jack Dorsey’s Block, operator of digital payment service Square.
Whistleblower lawyers are calling for higher fines to end the practice, which persists despite the crackdown. They worry that such contracts, even if not legally enforceable, will discourage employees from reporting bad behavior to regulators. Gensler has praised the whistleblower program since taking office. In August 2022, he said it “has provided significant support to the Commission’s work to protect investors.”
The SEC rule goes beyond contracts that prohibit employees from speaking to the agency. Companies can get into trouble if they demand that employees lose their rights to whistleblower awards The Atlanta company was charged by the SEC in 2016. SEC whistleblowers can receive up to 30% of fines collected as part of a regulatory enforcement action.
Thomas Le Bonniec, who works for Apple subcontractor GlobeTech Services Ltd. said he initially had trouble making allegations about Siri’s privacy practices because of its restrictive non-disclosure agreement. His contract threatened unspecified “monetary damages” if he shared confidential information “outside of work” — without exception, he complained.
“It was scary. I thought I might be broke for the rest of my life,” Le Bonniec, who is represented by Kohn, Kohn & Colapinto, said in an interview.
A dedicated Siri data analyst, Le Bonniec said he overheard conversations that he believed violated users’ privacy, including details about sexual preferences, bank account numbers, and health issues. He said the importance of exposing the existence of the recordings outweighed the risk of violating his agreement, so he went public. After consumer outcry, Apple has made changes to Siri to address privacy concerns.
Le Bonniec said he essentially worked as an Apple employee, used a specific email address, and delivered work exclusively for the company. He believes the tech giant should be held accountable for its subcontractor’s employment contract.
After quitting his job at GlobeTech, Le Bonniec filed a previously unreported complaint with the SEC in 2020, accusing Apple’s subcontractor of providing him with a non-disclosure form that prevented employees from reporting wrongdoing to the agency.
“Enforcement of these violations would send a clear message that public companies in the United States cannot use subcontractors to circumvent regulatory requirements by which they are bound, regardless of where they operate,” the complaint reads. accusing both Apple and GlobeTech of violating the SEC rule.
A spokesman for Apple declined to comment. GlobeTech did not return an emailed request for comment.
SEC Enforcement
Employers, as government contractors, have been aware of the issue since 2015 KBR Inc agreed, without admitting or denying the allegationsto pay a $130,000 fine. The company also amended a confidentiality statement to inform employees that they are not required to notify the company before reporting suspected legal violations to a government agency.
At least a dozen companies continued to omit exemptions from reporting to the SEC, according to a Bloomberg News review of confidentiality agreements issued over the past two years and found in recent filings with the agency.
“The extent to which this is still happening is worrying,” said Dan Berkovitz, who served as the SEC’s general counsel until January. “The SEC has fined companies for restrictive confidentiality agreements that do not provide for explicit carve-outs.”
Last year, cash management company Brink’s Co. agreed, without admitting or denying wrongdoing, to pay a $400,000 fine and amend its employment contracts to allow whistleblowers to receive a spin-off to report to any government agency can.
Some companies have run into trouble even when using carve-outs.
Video game company in February Activision Blizzard Inc. has settled allegations that it broke the rule by entering into separation agreements that required employees to first notify the company before responding to requests for information from administrative authorities.
The SEC, in a comparison of the company’s business practices, concluded that although most of Activision’s agreements included a separate outsourcing for reporting to the regulator, the reporting requirement undermined the rule. The company has neither admitted nor denied wrongdoing.
“As the order recognizes, we have improved disclosure processes related to workplace reporting and updated our contract language for separations,” a company spokesman said.
As enforcement increases, whistleblower advocates are also pushing for tougher penalties, arguing that the current level of fines makes breaking the rule an acceptable cost to doing business.
“Until their fines get a little bigger, some companies will roll the dice,” said Mary Inman, a partner at Constantine Cannon who represents whistleblowers. “It’s a small price to pay to silence a whistleblower.”