Hellen Siwanowicz, McMillan LLP
On July 14, 2016, the Ontario Securities Commission (the “OSC”) launched the first paid whistleblower program by a securities regulatory authority in Canada and also adopted OSC Policy 15-601 – Whistleblower Program, which provides guidance on the program. The whistleblower program was implemented to encourage individuals to report information regarding serious securities-related or derivatives-related misconduct to the OSC or, where appropriate in the circumstances, through an internal compliance and reporting mechanism.
Under the whistleblower program, individuals who meet certain eligibility criteria and who voluntarily submit information to the OSC staff regarding a breach of Ontario’s securities laws may be eligible for a whistleblower award of up to $5 million if it is determined that the information submitted was of meaningful assistance to the OSC staff investigating the matter and results in a final order imposing monetary sanctions and/or the making of a voluntary payment of $10 million or more and the OSC collects monetary sanctions and/or voluntary payments are made of $10 million or more.
The whistleblower program offers important protections to whistleblowers. The program provides that the OSC staff will make all reasonable efforts to keep confidential both the identity of a whistleblower and information that could reasonably be expected to reveal the whistleblower’s identity, subject to certain specified exceptions, including when the information is required by law. In addition, the whistleblower program includes certain employee protections against reprisals, which are now part of the Securities Act (Ontario) (the “OSA”).
The anti-reprisal provisions of the OSA prohibit reprisals against an employee (i) who has provided information to, among others, his or her employer, the OSC, a recognized self-regulatory organization or a law enforcement agency about an act that the employee reasonably believes is contrary to Ontario’s securities laws or a by-law or other regulatory instrument of a recognized self-regulatory organization, or (ii) cooperated, testified or otherwise assisted in an investigation by the OSC, a recognized self-regulatory organization or a law enforcement agency, or a proceeding of the OSC or a recognized self-regulatory organization or a judicial proceeding. The anti-reprisal provisions define a reprisal broadly to be any measure taken against an employee that adversely affects his or her employment and includes but is not limited to (a) ending or threatening to end the employee’s employment, (b) demoting, disciplining or suspending or threatening to demote, discipline or suspend an employee, (c) imposing or threatening to impose a penalty related to the employment of the employee, or (d) intimidating or coercing an employee in relation to his or her employment.
The OSA's anti-reprisal provisions provide that a provision in any agreement, including a confidentiality agreement between an employer and employee, is void to the extent that it precludes or purports to preclude the employee from giving information to the OSC, a recognized self-regulatory organization or a law enforcement agency, or cooperating, testifying or otherwise aiding in an investigation by the OSC, a self-regulatory organization or a law enforcement agency or a proceeding of the OSC, a self-regulatory organization or a judicial proceeding.
The anti-reprisal provisions of the OSA have only been in force since June 28, 2016. Given that the enforcement history is very limited, it would be prudent for issuers to consider if any provision in any employment or severance agreement to which the issuer is a party could be rendered void pursuant to the anti-reprisal provisions of the OSA.
As is often the case in securities related matters, what is happening south of the border is relevant. The United States Securities and Exchange Commission (the “SEC”) established a paid whistleblower program in 2011 to incentivize whistleblowers with specific, timely and credible information about federal securities law violations to report to the SEC. The SEC’s whistleblower program also contains provisions protecting whistleblowers. Given the similarities between the OSC and SEC whistleblower programs, it is informative to mention two recent enforcement actions brought by the SEC that concerned severance agreements.
In August 2016, the SEC announced settlements with two issuers arising from charges that they had each violated securities laws by using severance agreements that required outgoing employees to waive their rights to possible whistleblower awards or risk losing their severance payments or other post-employment benefits. Both issuers agreed to pay penalties and agreed to provide certain undertakings.
In the BlueLinx[1] case, the issuer provided an undertaking to contact certain former employees who signed severance agreements and provide them with a statement that the issuer does not prohibit former employees from providing information to, or communicating with, SEC staff without notice to the issuer, or accepting a whistleblower award from the SEC.
In the Health Net[2] case, the issuer provided an undertaking to contact certain former employees who signed waiver and release claims and provide them with a statement that the issuer does not prohibit former employees from seeking and obtaining a whistleblower award from the SEC.
It is interesting to note that in the United States, provisions in severance agreements that discourage disclosure by whistleblowers violate securities laws, whereas in Canada they will be deemed void.
Hellen Siwanowicz is a Partner at McMillan LLP