FINRA Reminds Employers of Anti-gag Regulations

The Financial Industry Regulatory Authority (FINRA) recently implemented written guidance that bars employers from entering into restrictive settlement agreements. “Restrictive settlement agreements” are defined as agreements that would prevent or “gag” an employee from contacting the Securities and Exchange Commission (SEC), FINRA or any state or federal regulatory authority about possible securities violations. This ban on restrictive confidentiality terms in settlements also extends to stipulations and agreements made by parties to an arbitration proceeding. FINRA, which previously cautioned employers in 2004 (Notice to Members 04-44), recently issued this notice to remind firms that any settlement agreement, and other documents, that include provisions that “gag” parties from communicating with the SEC, FINRA, or any federal or state regulatory authority regarding a possible securities law violation,” is a violation of FINRA Rule 2010 (Standards of Commercial Honor and Principles of Trade). FINRA provides that following as an example of an acceptable confidentiality provision in a settlement agreement as part of its written guidance:

Any non-disclosure provision in this agreement does not prohibit or restrict you (or your attorney) from initiating communications directly with, or responding to any inquiry from, or providing testimony before, the SEC, FINRA, any other self-regulatory organization or any other state or federal regulatory authority, regarding this settlement or its underlying facts or circumstances.

The FINRA also cautions that the use of confidential provisions meant to “gag” individuals in discovery stipulations to restrict their ability to communicate directly with or in response to an inquiry from a regulatory authority, also constitutes a violation of FINRA Rule 2010. FINRA cites to the SEC’s rule on the matter in the whistleblower regulations as grounds for Regulatory Notice 14-40. Learn more about Securities and Commodities Fraud and review Whistleblower Protection Resources.