The SEC has fined an Atlanta company $265,000 for using various severance agreements restricting whistleblower activities.
The Dodd-Frank Act added ’34 Act § 21F encouraging whistleblower programs. The SEC adopted Rule 21F-17 providing:
(a) No person may take any action to impede an individual from communicating
directly with the Commission staff about a possible securities law violation,
including enforcing, or threatening to enforce, a confidentiality agreement . . . with respect to such communications.
The Company’s severance agreements contained confidentiality and “trade secrets” provisions that prohibited departed employees from “us[ing] or disclos[ing] to any third party Confidential Information, unless compelled by law and after notice to BlueLinx.” Making matters worse, in June 2013, the Company modified its agreements to (a) remove the restriction on disclosures required by law, but retain a notice requirement; and (b) expressly acknowledge SEC whistleblower provisions, but [inexplicably] requiring employees to waive any whistleblower recovery.
The Order is unusual because its undertakings section prescribes a clause for use in severance agreements:
“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 Order, In the Matter of BlueLinx Holdings, Inc., Rel. No. 34-78528, AP File No. 3-17371 (SEC Aug. 10, 2016) is here.
Thomas K. Potter, III (email@example.com) is a partner in the Securities Litigation Practice Group at Burr & Forman, LLP. Tom is licensed in Tennessee, Texas and Louisiana. He has over 30 years’ experience representing financial institutions in litigation, regulatory and compliance matters. See attorney profile.
© 2016 by Thomas K. Potter, III (all rights reserved).