SEC Has Laser Focus on Severance Agreements


SEC HQ4The Securities and Exchange Commission is serious about stamping out problematic severance agreements. In less than one week, two companies have had to pay fines to resolve commission allegations that their severance agreements violated whistle-blower protection rules.

Insurance company Health Net Inc. agreed Aug. 16 to pay $340,000 over its agreement. According to the SEC, the pact made departing employees forgo the ability to collect a whistle-blower reward as a condition for receiving severance payments and other post-employment benefits.

Earlier, BlueLinx Holdings Inc. Aug. 10 agreed to pay $265,000 to settle similar allegations.

Both companies didn’t admit or deny the allegations. As part of their settlements, they also agreed to strike the problematic language from their severance agreements, and inform departing workers that they are free to approach the SEC if they suspect possible securities violations.

Whistle-blower attorneys are lauding the SEC’s actions as a warning to employers against restricting whistle-blower rights. And the SEC may not be limiting itself to severance agreements.

In the BlueLinx action, SEC Deputy Enforcement Director Stephanie Avakian warned that the agency will continue to “clear away impediments” that may chill whistle-blowing.

Basically, it’s time for companies to revisit internal employee materials and agreements to ensure they don’t present a target for the SEC. And remember, the more employees you have, the greater the chances that one will complain to the agency about any restrictive language.