In most employment separation or “severance” agreements, employees receiving some form of severance compensation or other inducements from an employer do so in exchange for certain waivers of rights. For instance, employees may be asked to forfeit any potential claims for breach of contract; violations of Family Medical Leave Act; violations of the Americans With Disabilities Act; violations of Fair Labor Standards Act or similar state statutes; discrimination; invasion of privacy; harassment; wrongful termination and retaliation; and employment-related torts.
Some claims may not properly be waived, such that a court may later invalidate even a formal, written waiver. For example, courts have held that certain claims based in federal law (e.g.., FLSA, ADA and Title VII discrimination claims) might not waivable. Generally speaking, state law claims are more frequently held to be waivable.
Recently, the U.S. Securities Exchange Commission has cracked down on employers and severance agreements that would restrict or impede so-called “whistleblowers.” The main basis for such challenges by the SEC is the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, specifically its amendment of the Securities Exchange Act of 1934 (“Exchange Act”) and addition of Section 21F entitled, “Whistleblower Incentives and Protection.”
For example, in August 2016 the SEC announced a settlement with BlueLinx Holdings, Inc. in the amount of $265,000 under Section 21F and accompanying SEC Rule 21F-17. BlueLinx had allegedly violated these provisions by using severance agreements that required outgoing employees to waive their rights to monetary recovery should they file a charge or complaint with the SEC or other federal agencies.
According to the SEC’s August 2016 order related to the settlement, BlueLinx had entered into severance agreements between 2011 and 2016 that:
…contained some form of a provision that prohibited the employee from sharing with anyone confidential information concerning BlueLinx that the employee had learned while employed by the company, unless compelled to do so by law or legal process. The confidentiality provisions also required employees either to provide written notice to the company or to obtain written consent from the company’s legal department prior to providing confidential information pursuant to such legal process. None of the confidentiality provisions contained an exemption permitting an employee to provide information voluntarily to the Commission or other regulatory or law enforcement agencies.
The SEC cited two specific provisions of concern related to the severance agreements at issue:
…“Employee has not and in the future will not use or disclose to any third party Confidential Information, unless compelled by law and after notice to BlueLinx…If the Employee has any question regarding what data or information would be considered by BlueLinx to be information subject to this provision, the Employee agrees to contact BlueLinx’s Legal Department in writing for written clarification.”
…[The employee shall] hold in a fiduciary capacity for the benefit of the Company [ ] all Confidential Information….For a period of two years, following the [employee’s] Termination Date, Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge Confidential Information.
In view of these provisions, the SEC concluded that:
…By including those clauses in its Severance Agreements, BlueLinx raised impediments to participation by its employees in the SEC’s whistleblower program. By requiring departing employees to notify the company’s Legal Department prior to disclosing any financial or business information to any third parties without expressly exempting the Commission from the scope of this restriction, BlueLinx forced those employees to choose between identifying themselves to the company as whistleblowers or potentially losing their severance pay and benefits.
The BlueLinx settlement raises several issues for both employers and employees pertaining to waivers of rights in severance agreements. Most obviously, employers should adopt remedial language ordered by the SEC in that case. In essence, such language should provide that nothing in the severance agreement will impedes the employee’s communications with any government agency or ability to participate in a government investigation without notice to the company. BlueLinx was also ordered to specifically state in its agreement that the agreements do not “limit [the] employee’s right to receive an award for information provided to any government agencies.”
This case was not handled by our firm. However, if you have any questions regarding this case, or any employment matter, please contact Joseph Maya at 203-221-3100 or by email at JMaya@MayaLaw.com.
The attorneys at Maya Murphy stand ready to assist you in considering waiver issues. No two situations are the same; there are always differentiating facts and circumstances. Thus, you should consult with an experienced practitioner to determine where you stand. For further information, call us today at (203) 221-3100.