sec owbOn August 10, 2016, the SEC announced that BlueLinx Holdings Inc. (Company) is settling charges that it violated Rule 21F-17 by requiring outgoing employees to waive whistleblower bounty awards in connection with severance agreements and by using an overly restrictive confidentiality clause.  The Company agreed to pay a penalty of $265,000 and revise its agreements.  The Order can be accessed here.

The SEC alleged that in mid-2013, the Company added to its severance agreements a provision waiving potential whistleblower awards.  The SEC took issue with that waiver based on Rule 21F-17 (on July 21, 2010, Dodd-Frank amended the Exchange Act by adding Section 21F, titled “Whistleblower Incentives and Protection”), which prohibits company actions that impede a report of a possible securities law violation to the SEC.

Without admitting liability, the Company reached a settlement with the SEC, agreeing to pay the above-referenced penalty and include the following provision:

Protected Rights.  Employee understands that nothing contained in this Agreement limits Employee’s ability to file a charge or complaint with the Equal Employment Opportunity Commission, the National Labor Relations Board, the Occupational Safety and Health Administration, the Securities and Exchange Commission or any other federal, state or local governmental agency or commission (“Government Agencies”).  Employee further understands that this Agreement does not limit Employee’s ability to communicate with any Government Agencies or otherwise participate in any investigation or proceeding that may be conducted by any Government Agency, including providing documents or other information, without notice to the Company.  This Agreement does not limit Employee’s right to receive an award for information provided to any Government Agencies.

The Company also agreed to make “reasonable efforts” to inform former employees who had executed severance agreements after August 12, 2011 that they are not prohibited from reporting to the SEC or accepting whistleblower awards.

Commenting on this action, Jane Norberg, Acting Chief of the SEC’s Office of the Whistleblower, stated, “Companies simply cannot undercut a key tenet of our whistleblower program by requiring employees to forego potential whistleblower awards in order to receive their severance payments.”  Query whether this is a sign of things to come under Ms. Norberg’s leadership.

In light of this Order, employers should carefully review their severance and settlement agreements to ensure that they cannot be construed as impeding an employee’s ability to report to the SEC.