On Aug. 16, 2016, the U.S. Securities and Exchange Commission (SEC) announced that it had issued its second fine in as many weeks concerning a company’s use of severance agreements that contain confidentiality and/or covenant-not-to-sue or release provisions that allegedly violate SEC whistleblower Rules.

These recent SEC charges arise from SEC Rules, passed in August 2011 as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), which enable whistleblowers to collect 10 percent to 30 percent of the total award when giving information that leads to an action recovering at least $1 million. 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.”

According to the most recent SEC order, Health Net Inc. agreed to a monetary penalty without admitting or denying the SEC’s allegations that it illegally used severance agreements requiring outgoing employees to waive their ability to obtain monetary awards from the SEC’s whistleblower program. According to the cease-and-desist order from the SEC, from August 2011 to October 2015, Health Net had language in its severance agreements that stopped employees from “filing an application for, or accepting, a whistle-blower award” from the SEC.  In addition to the fine, the settlement agreement also required Health Net to notify former employees who signed the severance agreements to let them know they are not prohibited from accepting SEC whistle-blower rewards.