On April 3, 2015, we reported that the Securities and Exchange Commission (SEC) had sent letters to numerous publicly-traded U.S. companies requesting their nondisclosure agreements, severance and settlement agreements, and other contracts entered into after the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) to determine whether the documents unduly interfere with the employees’ ability to report securities violations to the SEC. As we discussed in this client alert, the SEC’s position is that, post-Dodd-Frank, agreements with employees must be drafted in such a way as to permit disclosure of information by employees to law enforcement and regulatory authorities, including the SEC; to permit confidential communications by employees with the SEC and other authorities; to allow employees to file securities-related complaints with external agencies; and to carve out from waivers of monetary rewards those rewards that are associated with making whistleblower claims. Any agreements including language to the contrary can be used by the SEC as evidence of retaliation against whistleblowers in violation of Dodd-Frank.
In keeping with this policy directive, the SEC announced on August 10, 2016 that BlueLinx Holdings Inc. settled a claim that the company had violated Dodd-Frank by using severance agreements that required outgoing employees to waive their right to monetary recovery if they file a charge or complaint with the SEC (or other federal agencies including the EEOC, NLRB, and OSHA). BlueLinx allegedly drafted the severance agreement containing the verboten language after the adoption of the SEC’s rules interpreting Dodd-Frank. The agreements also restricted departing employees from sharing confidential information or trade secrets unless compelled to do so by law and only after obtaining the company’s written consent. All of these provisions violate the SEC’s rules implementing Dodd-Frank.
In settlement of the dispute, BlueLinx agreed to pay a civil penalty of $265,000 to the SEC and must revise its standard severance agreements to provide that employees may communicate with and participate in investigations with federal agencies without the company’s approval. The company must also remove any language purporting to waive the recovery of monetary awards for whistleblowing claims, and make reasonable attempts to notify past signatories of the agreement that the company has revised its policies.
Publicly traded companies are advised to review their confidentiality, non-disclosure, separation, and settlement agreements with outside counsel to determine whether they comply with the SEC’s requirements and to take steps to amend their standard forms if necessary.