The SEC recently whacked two public companies for requiring separating employees to sign agreements in which they waived their rights to any money paid in connection with a complaint or charge filed with an administrative agency. The SEC also objected to clauses that Blue Linx Holdings, Inc. and Health Net, Inc. included in severance agreements that required the separating employees to notify the company before disclosing any financial or business information to the SEC. The companies are BlueLinx Holdings Inc. and Health Net, Inc.
The SEC considers restrictions like these to be illegal impediments to potential whistleblowers that are prohibited by the Dodd-Frank Act. Even though Health Net’s severance agreement stated that nothing in the agreement should impede the employee from communicating with or providing information to any government regulator, the company still forced separating employees to forego potential whistleblower bounties, which constitutes an impediment to participating in the SEC’s whistleblower program.
Health Net agreed to pay a civil penalty of $340,000. Blue Linx agreed to pay civil penalty of $265,000. Both companies agreed to contact former employees to inform them that the agreements do not prohibit former employees from (1) providing information to, or communicating with, SEC staff without notice to the company, or (2) accepting a whistleblower award from the SEC.