SEC Settlements Put Severance Agreements Under Increased Scrutiny

The US Securities and Exchange Commission (SEC) recently announced settlements with two companies for using severance agreements that allegedly violated Rule 21F-17.¹ Rule 21F-17 provides that "[n]o person may take 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."² The rule is part of the SEC's whistleblower program, which provides significant monetary incentives to individuals in exchange for information regarding potential securities violations.

The first settlement, which was announced on August 10, 2016, involves a cease-and-desist order against Atlanta-based building products distributor BlueLinx Holdings Inc.³ Among other things, the SEC's order alleged that BlueLinx used severance agreements that required outgoing employees to waive their rights to monetary recovery should they file a charge or complaint