The Securities and Exchange Commission (SEC) recently fined BlueLinx Holdings and Health Net, Inc. for including within severance agreements a provision designed to eliminate a former employee’s right to recover whistleblower incentives.  In what is generally considered a standard provision in severance agreements, the companies’ agreements allowed for the former employees’ participation in any government investigation but required a waiver of the right to recover any incentive payments that the law provides for whistleblowers.  The SEC issued substantial fines to these companies for this waiver requirement.  The SEC explained that the whistleblower incentive is a key part of the SEC’s enforcement efforts and that any public company’s attempt to eliminate or limit that incentive violates the law.

The SEC also found objectionable a provision found in many employers’ severance agreements relating to keeping matters confidential.  The SEC found objectionable a provision requiring that a former employee must inform the company’s legal department before disclosing any information to a government investigator.

Historically, the Equal Employment Opportunity Commission (EEOC) has allowed a similar “carve out” with respect to discrimination investigations.   The EEOC will strike down as unlawful provisions that require a former employee to waive the right to file a charge or that limits a former employee’s right to participate in any EEOC investigation.  But, the EEOC has allowed employers to require a waiver of the former employee’s right to recover any sums as a result of any such investigation conducted by the EEOC arising from that former employee’s charge or from a charge filed by another on the former employee’s behalf.  Does the SEC’s position signal that the EEOC will reconsider this enforcement position?  Time will tell.

What does this mean?

  • Any public company should conduct an immediate review of its standard severance agreement to ensure compliance with this position.
  • Any non-public company should be aware that the SEC’s position might signal a revised approach by other agencies, including the EEOC, and should likewise review severance agreements to ensure no obvious over-reach which might invite such an opportunity.