secOn 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.

Print:
Email this postTweet this postLike this postShare this post on LinkedIn
Photo of Lloyd B. Chinn Lloyd B. Chinn

Lloyd B. Chinn is a partner in the Labor & Employment Law Department and co-head of the Whistleblowing & Retaliation Group. He litigates employment disputes of all types before federal and state courts, arbitration tribunals (e.g., FINRA, JAMS and AAA), and before administrative…

Lloyd B. Chinn is a partner in the Labor & Employment Law Department and co-head of the Whistleblowing & Retaliation Group. He litigates employment disputes of all types before federal and state courts, arbitration tribunals (e.g., FINRA, JAMS and AAA), and before administrative agencies in New York and across the country. Lloyd’s practice ranges from litigating compensation disputes to defending whistleblower, discrimination and sexual harassment claims. Although he represents employers in a wide range of industries, including law, insurance, health care, consulting, media, education and technology, he focuses a substantial portion of his practice on the financial services sector. He has tried to final verdict or arbitration award substantial disputes in this area.

Due to Lloyd’s litigation experience, clients regularly turn to him for advice regarding the full range of employment matters, including terminations, whistleblower policy and procedure, reductions in force, employment agreements, and employment policies. For example, in the wake of the financial crisis, he has counseled a number of firms through reductions in force and related bonus and deferred compensation disputes. Lloyd has also been retained to conduct internal investigations of allegations of workplace misconduct, including claims leveled against senior executives.

Lloyd has represented global businesses in matters involving Sarbanes-Oxley and Dodd-Frank whistleblower claims. He has taken an active role in the American Bar Association on these issues, currently serving as Co-Chair of the Whistleblower subcommittee of the ABA Employee Rights and Responsibilities Committee. Lloyd has spoken on whistleblowing topics before a numerous organizations, including the American Bar Association, ALI-ABA, Association of the Bar of the City of New York, and New York University School of Law. He has testified twice before Congressional subcommittees regarding whistleblower legislation and has also published blog postings, articles and client alerts on a variety of topics in this area, including the Dodd-Frank Act’s whistleblower provisions. Lloyd is a co-editor of Proskauer’s Whistleblower Defense Blog, and he has been widely quoted by on whistleblower topics by a number of publications, including the New York Times, the Wall Street Journal, the National Law Journal and Law 360.

Lloyd has also become active in the International Bar Association, presenting on a variety of subjects, including: the #MeToo movement, the COVID-19 pandemic and employment law, and cross-border harmonization of employment provisions in transactions. Lloyd also hosts a quarterly roundtable discussion among financial services industry in-house employment lawyers. He has also published articles and given speeches on a variety of other employment-law topics, including non-solicitation provisions, FINRA arbitration rules, cross-border discovery, e-discovery, and the use of experts.