BlueLinx will pay the U.S. Securities and Exchange Commission (SEC) a $265,000 civil penalty and will alter the language of its severance agreements to settle a cease-and-desist proceeding in which the SEC claims BlueLinx was impeding the agency's whistleblower protection rules.

The SEC's order, issued Aug. 10, stems from language in BlueLinx's severance agreements between 2011 and 2016 in which departing executives generally promised to not use or disclose any confidential information about the Atlanta-based distributor's business. Those severance documents also contained some exceptions to the no-talk rule that varied from document to document.

The SEC was particularly concerned about language added to its severance agreements around June 2013 that said an outgoing employee who files a charge with the SEC or several other federal agencies "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." About 160 BlueLinx employees signed severance agreements containing that language.

By including that and a related clause, the SEC said, "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 exemption 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.

"Further," the SEC added, "by requiring its departing employees to forgo any monetary recovery in connection with providing information to the Commission, BlueLinx removed the critically important financial incentives that are intended to encourage persons to communicate directly with the Commission staff about possible securities law violations."

In a SEC news release, Jane Norberg, acting chief of the SEC’s Office of the Whistleblower, stated: “Companies simply cannot undercut a key tenet of our whistleblower program by requiring employees to forego potential whistleblower awards in order to receive their severance payments.”

Even before including particular language in 2013 about talking to the SEC, BlueLinx was attempting to limit ex-workers from talking, the SEC's notice suggested. It noted that between September 2011 and mid-2013, some of the 18 BlueLinx employees who signed severance agreements promised to not disclose information "unless compelled by law and after notice to BlueLinx." Others signed documents committing themselves to not speak "without the prior written consent of the company or as may otherwise be required by law or legal process."

As part of the SEC's Aug. 10 order, BlueLinx promised to put in its severance agreements language declaring that "nothing contained in this agreement limits Employee's ability to file a charge or complaint" with the SEC and several other federal agency. It also specifies that the severance agreement doesn't limit the signee's ability to communicate with government agencies regarding any investigation or proceeding. And it declares at the end: "This agreement does not limit Employee's right to receive an award for information provided to any Government Agencies."

BlueLinx also agreed to reach out to all ex-employees who have signed severance agreements with the company since 2011 notifying them of the Aug. 10 order and that BlueLinx doesn't prohibit former employees from communicating with the SEC or from accepting a whistleblower award.