In 2010, the passage of the Dodd-Frank Act created a slew of new whistleblowing laws making it easier for whistleblowers to provide information to the federal government in return for hefty whistleblowing rewards and giving the government a powerful new tool in rooting out illegal activity by businesses and individuals. One way that companies have responded to this heightened enforcement atmosphere is to create internal policies to discourage employees from exercising their rights under the new whistleblowing laws. The Securities and Exchange Commission (SEC), however, has taken action in recent weeks to punish those companies for discouraging employees from reporting wrongdoing, with the most recent sanctions coming against Southern California insurer Health Net.
Health Net’s Anti-Whistleblower Severance Agreements
The Health Net policy that the SEC took issue with was the inclusion of language in company severance agreements which said that employees receiving severance waived the right to receive whistleblowing rewards from “any proceeding based on any communication by employee to any federal, state, or local government agency or department.” Some version of this language was in Health Net’s severance agreements from 2011 to 2015, when the SEC took steps to crack down on anti-whistleblowing policies.
Although companies are clearly prohibited from taking retaliatory action against an employee for whistleblowing, such as reducing pay or terminating them, this type of agreement to give up a person’s right to whistleblow might be considered a “peremptory” rather than a retaliatory attack on an employee. The SEC has made it clear that these kind of policies which in a sense promise to retaliate against an ex-employee by nullifying their severance if they whistleblow are not legal, and the SEC fined Health Net $340,000 and required the company to inform those with severance agreements that they do have the right to contact government authorities.
Other Recent SEC Actions to Protect Whistleblowers
The SEC’s actions against Health Net for trying to discourage whistleblowing is only the most recent action the agency has taken to protect whistleblowers. The SEC contacted a number of companies in early 2015 to inquire about what they had done to suppress the whistleblowing process. In April 2015, the SEC fined KBR Inc. $130,000 for requiring employees to sign confidentiality agreements which prevented them from discussing internal matters with outside agencies without prior approval of the company’s legal department. And in the week just prior to its actions against Health Net, the SEC also took action against Atlanta-based BlueLinx, fining the company $265,000 for including anti-whistleblower language in its severance agreements, similar to the practices at Health Net with which the SEC took issue.
How to Pursue A SEC Whistleblower Award
The SEC is actively looking for more individuals to bring information to it which can be rewarded with a whistleblowing award. Bringing whistleblower information to the SEC can be a complex process, but it can also be tremendously lucrative, and the right thing to do to help keep our financial markets fair. At Kreindler & Associates, we work with employees and insiders to help them report wrongdoing, and obtain whistleblowing awards. To learn more about how Kreindler & Associates can help in your SEC whistleblower matter, see here.
