On September 10, 2015, a divided Second Circuit appeals court held in Berman v. Neo@Ogilvy LLC, that an employee who reports wrongdoing internally to management is considered a “whistleblower” under the Dodd-Frank Act, thereby strengthening retaliation protections for employee whistleblowers.
There has been a history of tension between the Dodd-Frank statutory definition of “whistleblower” and the applicability of the Dodd-Frank anti-retaliation provisions to employees who report suspected misconduct internally. The Act defines a “whistleblower” as “any individual who provides…information relating to a violation of the securities laws to the Commission…” However, section 78u-6(h)(1)(A)(iii) of the Act prohibits retaliation against “a whistleblower” who makes disclosures “required or protected” by the Sarbanes-Oxley Act. The U.S. Securities and Exchange Commission’s regulations interpret the term “whistleblower” to include for retaliation purposes employees who report or disclose potential wrongdoing either internally or to the SEC (SEC Rule 21F-2(b)(1)). This has led to a Circuit split among federal courts as to whether or not Dodd-Frank protects against retaliation only if the whistleblower reports the wrongdoing to the SEC, or if its protections also extend to whistleblowers who report misconduct internally to management.
In 2013, the Fifth Circuit ruled in Asadi v. GE Energy (USA), LLC, 720 F.3d 620 (5th Cir. 2013), that an employee who reported a potential Foreign Corrupt Practices Act violation to internal management was not a whistleblower under the Dodd-Frank because he did not “provide information relating to a violation of the securities laws to the SEC.” The court concluded that the plain language of Dodd-Frank shields from retaliation only those employees who report violations of the law directly to the agency. Those who report internally are not protected because they did not provide “information relating to a violation of the securities laws to the Commission, in a manner established, by rule or regulation, by the Commission.” Asadi, 720 F.3d at 629.
The Second Circuit’s decision directly conflicts with Asadi, and instead defers to the SEC’s interpretation. A recent SEC interpretation released last month clarified its position that while a whistleblower must report misconduct to the SEC to qualify for an award under the Act, whistleblowers who report internally are still protected from retaliation under Dodd-Frank.
Due to the split in the Circuits, this issue is likely to go to the Supreme Court sooner or later.
While some employers heralded Asadi’s narrowing of whistleblower protections, the SEC has argued that Berman’s broader interpretation may be more beneficial to employers. Whistleblowers have greater incentive to report wrongdoing under Dodd-Frank than under the Sarbanes-Oxley Act—Dodd-Frank has a longer statute of limitations, a larger potential for recovery and no administrative exhaustion requirement. Requiring whistleblowers to go straight to the SEC necessitates a bypass of the corporate reporting system and precludes any effort to de-escalate or resolve the issue internally.
Applicability of Dodd-Frank’s anti-retaliation provision will continue to be a hotly debated issue for the foreseeable future. The case to watch is Somers v. Digital Realty Trust, Inc., No. 15-80136 (N.D. Cal.), which has been certified for interlocutory appeal before the Ninth Circuit.