On August 16, 2016, the SEC announced that Health Net Inc. (Company) agreed to pay a $340,000 penalty to settle charges that it violated Rule 21F-17 by using severance agreements that allegedly prohibited its employees from receiving whistleblower awards from the SEC.
The SEC alleged that the Company violated federal securities laws by requiring its employees to sign severance agreements in which employees waived their rights to file applications for, or accept, whistleblower awards from the SEC. In June 2013, the Company amended the Waiver and Release of Claims in its severance agreements, removing the language that required employees to waive “the right to file an application for award for original information submitted pursuant to Section 21F of the Securities Exchange Act of 1934.” However, it retained language that prohibited employees from receiving monetary recovery for reporting information to “any federal, state or local government agency or department” until October 2015, when it struck all such language from its severance agreements.
According to the SEC’s order, the Company agreed to make “reasonable efforts” to contact all former employees who signed severance agreements from August 12, 2011 to October 22, 2015 and inform them that they are not prohibited from seeking and receiving whistleblower awards from the SEC. Further, the Company agreed to certify its compliance with the undertaking to the Enforcement Division.
The Company’s settlement with the SEC is significant, as it is the third settlement that the SEC has reached with companies that allegedly violated Rule 21F-17. Just last week, the SEC filed charges – also based on restrictive severance agreements – against BlueLinx Holdings Inc., who agreed to pay a $265,000 penalty. In April 2015, KBR Inc. agreed to pay a $130,000 penalty after using restrictive language in its confidentiality agreements that allegedly deterred whistleblowers from reporting to the SEC.