The U.S. Securities and Exchange Commission (SEC) has sanctioned a firm for using severance agreements that would prohibit prospective whistleblowers from collecting financial rewards.
The SEC has settled charges against BlueLinx Holdings Inc., a building products distributor, for violating securities laws by requiring outgoing employees to waive their rights to monetary rewards if they file a complaint with the SEC or other federal agencies.
In settling the case, BlueLinx agreed to pay a US$265,000 penalty and consented to a cease-and-desist order, without admitting or denying the findings.
According to the SEC’s order, BlueLinx added the prohibition to all of its severance agreements in mid-2013, almost two years after the SEC introduced its whistleblower program, which pays rewards for tips that lead to major enforcement action.
The SEC says that the agreements forced employees to waive possible whistleblower awards or risk losing their post-employment benefits.
“Companies simply cannot undercut a key tenet of our whistleblower program by requiring employees to forgo potential whistleblower awards in order to receive their severance payments,” says Jane Norberg, acting chief of the SEC’s Office of the Whistleblower, in a statement.
In addition to the monetary penalty, BlueLinx also agreed to amend its severance agreements to allow former employees to report possible securities law violations to the SEC without having to forfeit a whistleblower award — and to contact former employees covered by these agreements to inform them that they’re not banned from accepting SEC whistleblower awards.
“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,” says Stephanie Avakian, deputy director of the SEC’s enforcement division, in a Statement.
In July, the Ontario Securities Commission (OSC) launched Canada’s first paid whistleblower program, which also includes protections for prospective whistleblowers.
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