Incentivizing whistleblowers to report internally
With last month’s Nebraska district court decision extending whistleblower protections under the Dodd-Frank Act to employees who report misconduct externally to entities other than the SEC, companies need to be more careful about their compliance policies.
In Bussing vs COR Cleaning LLC, Judge John Gerrard ruled that, unlike with the whistleblower bounty program established by Dodd-Frank, employees need not report to the SEC to be protected by the law’s retaliation provision. The plaintiff in this case, ignoring objections by her company, reported conclusions of an internal investigation to the Financial Industry Regulatory Authority (FINRA) and was fired after participating in an onsite examination at FINRA stemming from her complaint.
Bussing is one of a handful of decisions that interpret Dodd-Frank’s anti-retaliation provision more broadly to offer whistleblower protection to people complaining even if they don’t report to the SEC, while another group of rulings contradicts that reading, including Asadi vs GE Energy, decided by the Fifth Circuit court last July. Given that Asadi was an appellate ruling, the interpretation of the law protecting whistleblowers is clear in the Fifth Circuit, which includes Texas, Louisiana and Mississippi, but nowhere else in the country is the case settled.
Cases in the Southern District of New York go both ways, though one, Liu Meng-Lin vs Siemens, where the judge approved of the Asadi analysis, is being appealed in the Second Circuit court. If the Second Circuit court overturns the district court decision, there would a conflict between circuits and the issue would be ripe for a Supreme Court review, says Ed Ellis, co-chair of the whistleblower and retaliation practice at Littler Mendelson.
A key problem with the Asadi decision, Judge Gerrard said, is that it doesn’t address situations where employees report violations internally before going to the SEC. That decision is also ‘inconsistent with what companies have been telling employees,’ says Jordan Thomas, a partner and chair of Labaton Sucharow’s whistleblower representation practice and former assistant director of the SEC. ‘One thing often forgotten is that corporate America lobbied the SEC very aggressively to require whistleblowers to report internally first or, at minimum, simultaneously with reporting to the SEC. The SEC declined to do that… If corporate America continues to argue in courts that whistleblowers aren’t entitled to protections for reporting misconduct internally, it’s going to undermine internal reporting.’
Posting to the FCPA Blog after the Asadi ruling last July, Thomas Fox argued the same point, reminding readers: ‘The reason companies made this request [for reporting internally before going to the government] was that it was only fair to allow companies to fix problems of which they may not have been aware.’ He added that although the SEC didn’t require internal reporting as a prerequisite for Dodd-Frank whistleblower protection, it did offer whistleblowers an incentive to report internally before submitting information to the SEC.
Conservative counsel will always encourage clients to report externally as well as internally to ensure they’re covered regardless of how appellate courts resolve this issue, says Thomas. ‘The most significant barrier to people reporting is the fear of retaliation and blacklisting. Each time the court sides with whistleblowers and provides additional protection and remediation, whistleblowers are more likely to come forward… These sorts of decisions are gaining momentum and suggest the scope of whistleblower protections is going to grow, not shrink.’
That means corporate officers and human resources managers should get training to recognize these problems, says Ellis. ‘Does everybody in a responsible position understand what mail fraud and wire fraud are?’