An Atlanta-based building products distributor has agreed to pay a $265,000 penalty to settle charges that it violated securities laws by using severance agreements requiring outgoing employees to waive their rights to a monetary recovery should they file a charge or complaint with the Securities and Exchange Commission (SEC) or another federal agency.
According to the SEC’s Office of the Whistleblower, BlueLinx Holdings Inc. added the monetary recovery prohibition to all of its severance agreements in mid-2013, nearly two years after the SEC’s adoption of Rule 21F-17, which prohibits companies from trying to gag potential whistleblowers.
The Agency is cracking down on companies that use employment agreements to threaten employees with the loss of severance payments, post-employment benefits, or other adverse actions should they try to report securities violations or other misconduct.
“We’re continuing to stand up for whistleblowers and clear away impediments that may chill them from coming forward with information about potential securities law violations,” said Stephanie Avakian, Deputy Director of the SEC’s Enforcement Division.
“Companies simply cannot undercut a key tenet of our whistleblower program by requiring employees to forego potential whistleblower awards in order to receive their severance payments,” Jane Norberg, Acting Chief of the SEC’s Office of the Whistleblower, added.
The SEC issued BlueLinx a cease-and-desist order, which the company consented to without admitting or denying the agency’s findings. In addition to paying the penalty, BlueLinx also agreed to amend its severance agreements to make clear that employees may report possible securities law violations to the SEC and other federal agencies without the company’s prior approval and without having to waive their right to claim a whistleblower award.
The SEC also required BlueLinx to contact former employees who had signed severance agreements after Aug. 12, 2011, to notify them that it does not prohibit former employees from providing information to the SEC staff or from accepting whistleblower awards.