Wyatt Employment Law Report

Do Your Severance Agreements Violate Federal Law?

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By Michelle Wyrick

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In light of the enforcement positions taken recently by the Securities and Exchange Commission (“SEC”) and the Occupational Safety and Health Administration (“OSHA”), which administer several whistleblower statutes, employers (and especially publicly-traded companies) should review the release provisions in their severance agreements and update them if needed.

For many years, the Equal Employment Opportunity Commission (“EEOC”) has taken the position that employers may not require employees who sign severance and release agreements to waive their rights to file charges with the EEOC or to participate in EEOC investigations.  The EEOC, however, has permitted employers to require employees to waive any right to monetary recovery in connection with any EEOC charges filed.  See EEOC Enforcement Guidance Non-Waivable Employee Rights under Equal Employment Opportunity Commission (EEOC) Enforced Statutes.

Now, the SEC has taken a more restrictive position.  Last month, the SEC fined two companies for using severance agreements that restricted whistleblower activities under Rule 21F-17 of the Dodd-Frank Act.  See In the Matter of BlueLinx Holdings Inc., No. 34-78528 (Aug. 10, 2016) and In the Matter of Health Net, Inc. No. 34-78590 (Aug. 16, 2016).  Rule 21F-17 prohibits any person from taking “any action to impede an individual from communicating directly with the [SEC] staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement.”  The severance agreements at issue contained provisions acknowledging that nothing in the agreements prevented the employees from filing a charge with any administrative agency, but the employees waived the right to any monetary recovery in connection with any such complaint or charge.  The SEC concluded that by requiring employees to waive their rights to monetary recovery, the companies removed the “critically important financial incentives that are intended to encourage persons to communicate directly with the [SEC] staff about possible securities law violations.”  The SEC also found that Blue Linx Holdings violated Rule 21F-17 by including provisions requiring the employees to notify the company’s legal department before disclosing any confidential business or financial information to third parties without expressly exempting the SEC from that restriction.  As part of the settlement with the SEC, Blue Linx Holdings agreed to include the following language in its severance agreements:

Protected Rights. Employee understands that nothing contained in this Agreement limits Employee’s ability to file a charge or complaint with the Equal Employment Opportunity Commission, the National Labor Relations Board, the Occupational Safety and Health Administration, the Securities and Exchange Commission or any other federal, state or local governmental agency or commission (“Government Agencies”). Employee further understands that this Agreement does not limit Employee’s ability to communicate with any Government Agencies or otherwise participate in any investigation or proceeding that may be conducted by any Government Agency, including providing documents or other information, without notice to the Company. This Agreement does not limit Employee’s right to receive an award for information provided to any Government Agencies.

Health Net was not required to include revised language in its severance agreements because it had already removed the offending language.

Like the SEC, OSHA recently indicated that it will negatively view attempts to prohibit employees from collecting whistleblower awards.  Provisions requiring a complainant to notify his or her employer before filing a complaint or communicating with the government regarding the employer’s conduct are also disfavored.  See Memorandum For Regional Administrators and Whistleblower Program Managers Regarding New Policy Guidelines For Approving Settlement Agreements In Whistleblower Cases (dated August 23, 2016, released September 15, 2016).  In addition, OSHA takes the position that asking employees to disclaim any knowledge of any legal violations by the employer may discourage employees from providing information to the government confidentially, which is legally protected activity.  The memo also targets disproportionate liquidated damages clauses and broad confidentiality and non-disparagement clauses that apply “except as provided by law” and do not specifically explain that an employee may provide information to the government, participate in investigations, and receive monetary awards from a government-administered monetary award program.

In light of these recently-announced enforcement positions from OSHA and the SEC, employers should review their severance agreements to ensure that they do not prevent employees from reporting suspected wrongdoing to government agencies.  Employers should also review any provisions that require employees to waive monetary awards in connection with complaints made under whistleblower statutes, or to the SEC to ensure compliance with applicable regulations.



Leave a reply. Please note that although this blog may be helpful in informing clients and others who have an interest in information privacy and security, it is not intended to be legal advice. The information on this blog also should not be relied upon to form an attorney-client relationship.

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