It takes guts to speak up when your employee breaks the law. But not all whistleblower complaints are created equal. When an employee reports corporate fraud or shareholder fraud to a supervisor or someone else inside the company—as opposed to a government agency—there can be a question whether that report entitles the employee to protection from retaliation.
If you are an employee in Cleveland, Akron, or anywhere else in Ohio who reported fraud by your employer and were retaliated against as a result, the Cleveland whistleblower attorneys at Bolek Besser Glesius LLC may be able to help.
The Dodd-Frank Act’s Protection for Whistleblowers.
Enacted in the wake of the 2008 financial crisis and Madoff Ponzi scheme, the Dodd-Frank Wall Street Reform and Consumer Protection Act brought about a significant regulatory overhaul to the U.S. financial sector. In the employment law world, perhaps the most significant change was the creation of a new protection for whistleblowers who report corporate fraud.
Found at 15 U.S.C. § 78u-6(h), the Dodd-Frank whistleblower provision prohibits employers from retaliating against employees who engage in any of three types of protected activity. The first is providing information to the Securities and Exchange Commission (“SEC”). The second is initiating, testifying in, or assisting in an investigation or legal action by the SEC. And the third is making “disclosures that are required or protected under the Sarbanes-Oxley Act of 2002,” the Securities Exchange Act of 1934, or “any other law, rule, or regulation subject to the jurisdiction of the Commission.”
This language seems fairly simple (at least to a lawyer): Employees who complain about corporate fraud at public companies are protected from retaliation. But what if the employee’s complaint is not to the SEC? What if the employee complains to his or her supervisor, the company’s accountant or auditor, or someone else internally? Does Dodd-Frank protect that employee from retaliation? That remains an open question.
The confusion stems from conflicting language within the statute itself. Dodd-Frank defines a “whistleblower” as someone who provides information “to the Commission,” meaning the SEC. 15 U.S.C. § 78u-6(a)(6). At the same time, however, Dodd-Frank lists three types of activities that entitle individuals to protection from retaliation. As noted above, one of those is making “disclosures that are required or protected under the Sarbanes-Oxley Act of 2002.” 15 U.S.C. § 78u-6(h)(1)(A). Because Sarbanes-Oxley (“SOX”) does protect internal disclosures (i.e., to one’s supervisor rather to the SEC), there is a tension within the language of Dodd-Frank over whether internal complaints are protected. As you can imagine, there is not uniform agreement among those tasked with interpreting the law.
The U.S. Court of Appeals for the Fifth Circuit says internal complaints are not protected. In Asadi v. G.E. Energy (USA), LLC, 720 F.3d 620, 622 (5th Cir. 2013), the Fifth Circuit held “that the plain language of the Dodd-Frank whistleblower-protection provision creates a private cause of action only for individuals who provide information relating to a violation of the securities laws to the SEC.”
On the other hand, the Department of Labor—which has responsibility for interpreting parts of Dodd-Frank—holds that internal complaints are protected. According to the DOL, Dodd-Frank applies “to three different categories of whistleblowers, and the third category includes individuals who report to persons or governmental authority other than the Commission.” Securities Whistleblower Incentives and Protections, 76 Fed. Reg. 34300-01, at *34304 (June 13, 2011). Indeed, the regulations drafted by the DOL clarify that a “whistleblower” includes someone who reports in a manner permitted by SOX, which permits internal reporting to a supervisor. 17 C.F.R. § 240.21F-2(b)(1). The majority of federal district courts to address the issue agree with the DOL. See e.g., Yang v. Navigators Group, Inc., 18 F. Supp. 3d 519 (S.D.N.Y. May 8, 2014); Khazin v. TD Ameritrade Holding Co., 2014 U.S. Dist LEXIS 31142 (D.N.J. Mar. 11, 2014); Rosenblum v. Thomson Reuters, 984 F. Supp. 2d 141 (S.D.N.Y. 2013); Murray v. UBS Securities, LLC, 2013 U.S. Dist. LEXIS 71945 (S.D.N.Y. May 21, 2013); Egan v. TradingScreen, Inc., 2011 U.S. Dist. LEXIS 47713 (S.D.N.Y. May 4, 2011).
It is anyone’s guess how this question will ultimately be resolved. A telling indicator will be what the next U.S. Court of Appeals to address the issue decides. If a Court of Appeals agrees with the Fifth Circuit in Asadi, it will likely start to tip the weight of legal authority away from protection for whistleblowers who complain internally, contrary to the Department of Labor’s position. On the other hand, if a Court of Appeals agrees with the DOL and the majority of district courts, it will probably render Asadi an outlier and help cement protection for internal complaints under Dodd-Frank. Either way, the possibility that the Supreme Court will ultimately decide the issue is certainly a real one, especially if Courts of Appeals start to disagree.
Why Protecting Internal Whistleblowers Matters.
This debate about the scope of Dodd-Frank’s whistleblower protection is more than just an obscure legal issue. It has very real consequences for employees who have the courage to speak out against corporate fraud. As I noted above, the Sarbanes-Oxley Act does protect employees from retaliation for blowing the whistle on corporate fraud. In many cases, however, the protections offered by SOX can be insufficient.
At the ouset, SOX has a very short 180-day statute of limitations. Whistleblowers who are not aware of the short time limit can miss the opportunity to vindicate their rights. Even when an employee does file timely, employees cannot file directly in court under SOX. Instead, they have to file with OSHA and pursue their claims through those administrative procedures. At least one study has shown that whistleblowers have fared comparatively poorly at OSHA.
Dodd-Frank’s whistleblower claim has several advantages over SOX. First, its statute of limitations is longer—six years generally, or up to ten years in certain limited circumstances. By itself, this additional time to file a claim will protect some whistleblowers when SOX does not. Time concerns aside, Dodd-Frank permits employees to file directly in federal court, and does not require the employee to go through OSHA. And, unlike SOX, Dodd-Frank permits recovery of twice the amount of back pay lost. For any of these reasons, Dodd-Frank might permit a whistleblower to get a meaningful recovery where SOX does not.
When companies break the law and try to hide it, whistleblowers protect us all. At Bolek Besser Glesius LLC, our Cleveland whistleblower attorneys have experience helping employees who spoke out against fraud or other illegal behavior at work and were retaliated against for it. If you find yourself in these shoes and have questions about your employment law rights, call us today.