Liquidated Damages

SEC Fines Company $6 Million Due To Liquidated Damages Provision In Employee Separation Agreement

The U.S. Securities and Exchange Commission (“SEC”) entered an order imposing sanctions against Anheuser-Busch InBev SA/NV (“Anheuser-Busch”) for using separation agreements that contained liquidated damages provisions in violation of SEC whistleblower protection rules. One whistleblower actually stopped working with the SEC out of fear of violating the terms of the separation agreement and its liquidated damages clause.
liquidated damages

The SEC Order

Background Of The Case

The case arose in connection with an investigation that the SEC was conducting into violations of the Foreign Corrupt Practices Act (“FCPA”) by a wholly owned subsidiary of Anheuser-Busch. An employee of one of Anheuser-Busch’s subsidiaries had told Anheuser-Busch his concerns about what was going on.  Apparently unknown to Anheuser-Busch, the employee also blew the whistle to the SEC. After the subsidiary terminated the employee, they engaged in a mediation over his termination.  Sometime thereafter, they settled their dispute.  Part of their settlement included entering into a “separation agreement”. According to the SEC’s Order against Anheuser-Busch, language in that separation agreement “impeded the employee from communicating directly with the Commission staff about possible securities law violations”.

The Liquidated Damages Provision In The Separation Agreement

The Order quoted language from three separate paragraphs of the separation agreement that the SEC found violated SEC whistleblower protections. The first two paragraphs cited by the SEC required the employee “to keep in strict secrecy and confidence” and “not to disclose, directly or indirectly” company information that was “unique, confidential and/or proprietary”, or that was not otherwise generally available or common knowledge.  This included information about the substance of the separation agreement. The third paragraph stated that if the employee violated any of those confidentiality provisions, he would be liable to the company and immediately pay it $250,000 as liquidated damages.

The Whistleblower Stops Working With The SEC Because Of The Separation Agreement And Its Liquidated Damages Clause

The employee was an SEC whistleblower under the SEC whistleblower program.  He had been voluntarily communicating with the SEC about Anheuser-Busch’s Foreign Corrupt Practices Act violations.  After signing the separation agreement, he stopped working with the SEC. The Order states that the whistleblower stopped working with the SEC “because he believed that he was prohibited by the recently executed Separation Agreement and any violation of the Separation Agreement would risk triggering the Separation Agreement’s liquidated damages provision”. According to the Order, Anheuser-Busch “has used the same or similar language in other agreements in the past”.
liquidated damage

The SEC’s press release

Anheuser-Busch Ordered To Pay Over $6 Million

Along with the FCPA violations, the SEC found that Anheuser-Busch violated SEC whistleblower protection rules because the language in the separation agreement impeded the employee/whistleblower “from communicating directly with the Commission staff.  Such restrictions on providing information regarding possible securities law violations to the Commission undermine the purpose” of the SEC whistleblower rules. For the combined FCPA and whistleblower protection violations, the Commission ordered Anheuser-Busch to pay over $6 million in disgorgement, penalties, and interest. In addition, among other things, the Order required Anheuser-Busch to:

(1) make reasonable efforts to contact former employees identified by the SEC;

(2) give them a copy of the Order; and

(3) provide them with a statement that Anheuser-Busch “does not prohibit former employees from contacting the Commission regarding possible violations of federal law or regulation”.

The then-Acting Chief (and later Chief) of the SEC’s Office of the Whistleblower declared in a press release that the “Threat of financial punishment for whistleblowing is unacceptable … We will continue to take a hard look at these types of provisions and fact patterns”.

Additional Information

For additional information about liquidated damages provisions in employee separation agreements, click on the links below:
  • The SEC’s Order in the Anheuser-Busch case.  (External link to the SEC’s website.)
  • The SEC’s Press Release about the Anheuser-Busch case.  (External link to the SEC’s website.)
  • Article about the Anheuser-Busch case.  (Note:  external link to The Pickholz Law Offices website.)

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