A recent decision by the Fifth Circuit Court of Appeals ruled that whistle-blowing employees are protected from retaliation under the Dodd-Frank Act if they report potential violations to the SEC, but not if they report those potential violations only to their employer. In Asadi v. G.E. Energy, Asadi, a former employee of G.E. Energy in Amman, Jordan, was terminated after informing his supervisor and a company ombudsperson of a suspected violation of the Foreign Corrupt Practices Act. The Fifth Circuit concluded that Asadi was not a whistle-blower as defined by the Dodd-Frank Act and was thus not protected by the provisions thereunder.
While the SEC’s definition of a “whistle-blower” is fairly broad and expansive, the Fifth Circuit noted that because Congress directly addressed the definition of a “whistle-blower” in the Dodd Frank Act, it was required to reject the SEC’s expansive definition for purposes of determining whistle-blower protection. The Fifth Circuit’s decision further clarified that under Dodd-Frank, “there is only one category of whistle-blowers: individuals who provide information relating to a securities law violation to the SEC.” The Fifth Circuit’s decision further clarified that employees who only report potential violations internally may be covered by the Sarbanes-Oxley Act of 2002; however, the court noted that the Dodd-Frank Act whistle-blower protection provides for greater monetary damages.
This ruling may undermine programs that many companies have developed to encourage would-be whistle-blowers to report such violations on an internal basis, instead of going to the SEC.
As a result, companies should take a closer look at the policies and provisions they currently have in place to provide comfort to employees that they will be protected from retaliation. Companies may want to ensure that they make clear (through actions and words) that they place a high priority on internal whistle-blowers and that they endeavor to take all whistle-blower complaints seriously.