SEC Levies Stiff Fines For Illegal Employee Severance Agreements Which Waive Employee Rights to File and Collect on Whistleblower Claims

18th August 2016

August 18, 2016.  The Securities and Exchange Commission (“SEC”) continues to fine companies that seek to restrict employee whistleblowers from reporting or collecting any financial rewards for filing a whistleblower charge or complaint with the SEC or any other federal agency.

Health Net Inc. was fined $340,000 on August 16, 2016 for allegations that its severance agreements impeded the SEC’s whistleblower program by requiring outgoing employees to waive their rights to any monetary recovery from any complaints or charges filed with the SEC or other federal agencies.

Six days before, the SEC levied a $265,000 civil money penalty on BlueLinx Holdings Inc., an Atlanta building products distributor, over such waivers contained in its severance agreements. BlueLinx’s restrictive waiver language forced outgoing employees to waive any potential whistleblower awards or risk losing their severance money and other benefits, according to the SEC.

BlueLinx also restricted employees from sharing confidential information with the SEC about possible securities laws violations without first providing written notice to the company or obtaining written consent from the company’s legal department. Such restrictions run contrary to the purpose of Section 21F, which is to encourage individuals to report potential securities law violations to the SEC and such restriction also violates Rule 21F-17(a) by impeding individuals from communicating directly with the SEC about possible violations.

As of June 9, 2016, the SEC’s whistleblower program has awarded more than $85 million to 32 whistleblowers since the program’s inception in 2011.  Whistleblower awards can range from 10 percent to 30 percent of the money collected when the monetary sanctions exceed $1 million.