Blue Linx Holdings Inc., a publicly traded company listed on the New York Stock Exchange, agreed to pay a fine of US $265,000 and to certain undertakings to settle charges brought by the Securities and Exchange Commission that the company impermissibly inhibited whistleblowing by ex-employees. According to the SEC, Linx Holdings included provisions in severance agreements with ex-employees that prohibited them from sharing confidential information about the company learned while employed with any third party unless “compelled to do so by law or legal process.” This prohibition, said the SEC, violated provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act that encourage whistleblowing and an SEC regulation that prohibits any person from impeding 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 communication.” Two years after the SEC adopted this rule (SEC Rule 21F-17), Blue Linx amended its severance agreements to authorize whistleblowing, but added a standard clause requiring ex-employees to waive their right to any monetary recovery in connection with any complaint or charge filed with an administrative agency. Blue Linx agreed to add a provision to all its severance agreements expressly permitting ex-employees to file charges or complaints with administrative agencies, and to collect any relevant award among its undertakings as part of its settlement.
Legal Weeds: Both the Commodity Futures Trading Commission and the Securities and Exchange Commission have express rules that prohibit the waiver of the right of any person to file a whistleblower complaint with the agencies and receive a monetary award. (Click here to access CFTC Rule 165.19 and here to access SEC Rule 240.21F-17) Employees also may not be retaliated against for whistleblowing (Click here, e.g., to access Section 23(h)(1) of the Commodity Exchange Act, 7 USC §26(h)(1) and here for Part A to Part 165 of the CFTC Rules.) SEC and CFTC registrants and SEC-regulated publicly traded companies should review their form employment and severance agreements to ensure they are consistent with regulatory requirements regarding employee and ex-employee whistleblower rights.