The SEC settled charges against a building products distributor for its use of severance agreements that required outgoing employees to waive their rights to monetary recovery when filing charges or complaints with the SEC or other federal agencies.
The confidentiality provisions required employees to either (i) provide written notice to the company, or (ii) obtain written consent from the company's legal department before sharing confidential information pursuant to law or the legal process. The confidentiality provision specified the monetary consequences of information sharing:
Employee further acknowledges and agrees that nothing in this Agreement prevents Employee from filing a charge with . . . the [SEC] or any other administrative agency if applicable law requires that Employee be permitted to do so; however, Employee understands and agrees that Employee is waiving the right to any monetary recovery in connection with any such complaint or charge that Employee may file with an administrative agency.
The SEC asserted that the company's inclusion of the confidentiality clause in its severance agreements (i) created impediments to employees' participation in the SEC's whistleblower program, and (ii) forced employees to choose between identifying themselves as whistleblowers to the company or potentially losing their severance pay and benefits.
The company agreed to (i) amend its severance agreements to emphasize that employees may report possible securities law violations to the SEC and other federal agencies without the company's prior approval or having to forfeit any whistleblower award, (ii) make reasonable efforts to contact former employees who executed severance agreements after Aug. 12, 2011 in order to notify them that the agreements do not prohibit them from providing information to SEC staff or accepting SEC whistleblower awards, and (iii) pay a $265,000 penalty.
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