The SEC’s Office of the Whistleblower Reports Major Increases in Whistleblower Activity and Important Shifts in the SEC’s Approach to Anti-Retaliation Enforcement
What you need to know:
The SEC recently released its 2015 annual report cataloguing the year’s most important trends in whistleblower activity and anti-retaliation law. The report provides a useful look at how DoddFrank’s substantial reforms to whistleblower law are playing out across the country. In 2015, the SEC paid more than $37 million to reward whistleblowers and has experienced a 30% increase in whistleblower tips compared to 2012. The report also documents two of the SEC’s chief enforcement priorities going forward. First, providing equal protection to whistleblowers who first issue their complaints internally, as well as to whistleblowers who bring their complaints directly to the SEC. Second, the report makes clear that the SEC will punish employers who require employees to sign confidentiality agreements that may serve to muzzle would-be whistleblowers.
What you need to do:
Employers should review their employment agreements or policies which contain restrictions around confidentiality or communication (e.g., non-disparagement and return of property clauses contained in separation, settlement and confidentiality agreements) to include clear language providing that nothing precludes an employee from communicating with a government agency. Additionally, employers should note the rapid increases in whistleblower tips and awards. These developments recommend a careful focus on designing transparent and effective compliance programs that identify and remediate workplace problems before they lead to government intervention.
The Four Biggest Takeaways of the SEC Report
Although the full report provides many insights, here are some of the key takeaways:
- 4,000 Whistleblower Tips, and $37 Million in Awards, in FY2015 Alone. The SEC is receiving more tips, and paying out more awards as each year passes. The 4,000 tips the SEC received in 2015 represents a 30% increase since 2012. The awards at stake are substantial: in one instance this year the SEC paid a little over $30 million to a single whistleblower.
- California Leads the Way in Whistleblower Activity, and Reports by Foreign Nationals Are Increasing. California had 646 whistleblower tips during FY2015, a total more than double that of the second most active state (New York, with 261). Additionally, the SEC received a substantial number of tips from abroad, including 72 from the UK alone and at least one tip from individuals in 61 different countries.
- The SEC Rejects Agreements that Restrict Whistleblower Rights. The report describes a new SEC focus on punishing employers who force employees to sign confidentiality agreements that may deter whistleblowing to the SEC, either by threatening employees with fines, termination or other disciplinary action. In April, the SEC took its first enforcement action against KBR Inc. for its use of such an agreement, even though KBR had never used the agreement to punish an employee. KBR settled for $130,000 and agreed to amend its confidentiality agreement.
- The SEC Pushes for Greater Protections for Internal Whistleblowers. Another major SEC focus is to ensure equal protection under anti-retaliation law to employees who first file their workplace complaints internally, as well as employees who immediately blow the whistle to the SEC. Although federal appeals courts remain split on this issue, the most recent case to take up the issue—the Second Circuit’s Berman v. Neo@Ogilvy LLC—sided with the SEC and held that Dodd-Frank’s retaliation protections apply equally to both types of whistleblowers.
As a whole, the new SEC report provides a useful update on how Dodd-Frank’s major whistleblower reforms are playing out across the country and the world. Employers now live in a world of increased protections and incentives for whistleblowers. With so much at stake, employers are encouraged to consider carefully how their policies dovetail with the ongoing changes in whistleblower activity and anti-retaliation law.