Who You Whistling At? Internal Whistleblowing Also Protected—Just not Under Dodd-Frank

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The United States District Court for the Southern District of New York recently took a surprising view on what would seem like a simple matter: An employee alleges wrongful dismissal, in violation of the whistleblower protection provisions of the Dodd-Frank Act.

SEC. 806. PROTECTION FOR EMPLOYEES OF PUBLICLY TRADED COMPANIES WHO PROVIDE EVIDENCE OF FRAUD.

…(a) WHISTLEBLOWER PROTECTION FOR EMPLOYEES OF PUBLICLY TRADED COMPANIES- No company with a class of securities registered under section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 78l), or that is required to file reports under section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(d)), or any officer, employee, contractor, subcontractor, or agent of such company, may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of any lawful act done by the employee–

(1) to provide information, cause information to be provided, or otherwise assist in an investigation regarding any conduct which the employee reasonably believes constitutes a violation of section 1341, 1343, 1344, or 1348, any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders, when the information or assistance is provided to or the investigation is conducted by–

  • (A) a Federal regulatory or law enforcement agency;
  • (B) any Member of Congress or any committee of Congress; or
  • (C) a person with supervisory authority over the employee (or such other person working for the employer who has the authority to investigate, discover, or terminate misconduct); or

(2) to file, cause to be filed, testify, participate in, or otherwise assist in a proceeding filed or about to be filed (with any knowledge of the employer) relating to an alleged violation of section 1341, 1343, 1344, or 1348, any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders…

“Surprising” because Dodd-Frank requires the protected whistleblower to report to the U.S. Securities and Exchange Commission (SEC), and the employee did not report anything to the SEC – instead, he allegedly repeatedly reported his complaint to his employer.  This is enough to make many think that the employee’s whistleblower suit should be dismissed, but it wasn’t.

Not So Fast

The employer asked the court to dismiss the complaint because the ex-employee did not allege that he made a report to the SEC, and therefore was not a “whistleblower” protected under the wording of Dodd-Frank. A U.S. District Court Judge declined to do so.

The court considered that Sarbanes-Oxley (SOX) (as opposed to Dodd-Frank) protects whistleblowers who report perceived SEC violations to their supervisors—or, to be exact, to “a person with supervisory authority over the employee (or such other person working for the employer who has the authority to investigate, discover, or terminate misconduct)….” Which is what the plaintiff said happened in this case.

The judge cited rules adopted by the SEC, which administers Dodd-Frank’s whistleblower provisions, interpreting the Dodd-Frank Act as extending the law’s anti-retaliation provisions to protect individuals whose disclosures were made under SOX, even if the person never complained to the SEC itself. For, as the judge pointed out, the protection against whistleblower retaliation applies to three distinct categories of individuals, and the third group includes individuals who reported to persons or entities other than the SEC.

This decision marks the fifth time a U.S. court has extended Dodd-Frank’s whistleblower provisions to cover employees who only complain internally. It may not be the last and may signal a more expansive reading of whistleblower protections in the workplace that a reading of some of the statutes (like Dodd-Frank) would lead one to foresee.

About Ann Longmore

Ann is Executive Vice President of Willis' Executive Risks practice. Based in New York, she has been with the compa…
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