Internal Reporting is Now Covered under the Whistleblower Anti-Retaliation Provision

posted on:
September 1, 2015

author:
Lance Gould

On Monday, Aug. 10, 2015, an interpretation of the SEC’s Whistleblower Rules under Section 21F of the Securities Exchange Act of 1934 went into effect. This interpretation solidified the intent of the SEC as it applied to protecting individuals from employment retaliation who decided to report internally instead of directly to the SEC Commission.

In the past, some companies argued that the anti-retaliation provisions did not apply to whistleblowers who went to their supervisor or CEO instead of directly to the SEC. This was the interpretation adopted by the Fifth Circuit in Asadi v. G.E. Energy (USA), LLC, 720 F.3d 620 (5th Cir. 2013).

In Asadi, the Plaintiff went to his supervisor when he became concerned that G.E. was violating Federal Law. The plaintiff was fired shortly thereafter. He filed a complaint under the Whistleblower Anti-Retaliation Provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act; however, the court held that he failed to state a claim because, under the act, he was not considered a whistleblower.

To date, the Fifth Circuit is the only circuit to address the issue of whether or not the anti-retaliation protections extend to any employee who engages in whistleblowing activities regardless of whether the individual makes a separate report to the SEC. One other case addressing this issue is currently pending in the Second Circuit: Berman v. Neo@Ogilvy LLC, 14-4626 (2nd Cir.).

In order to assist in the litigation pending in the Second Circuit, the SEC submitted an Amicus Curiae Brief in support of the appellant on Feb. 6, 2015. In its brief the SEC argued for the protection of the employee while explaining its interpretation of the SEC’s Whistleblower Rules under Section 21F of the Securities Exchange Act of 1934.

The interpretation, provided by the SEC, was promulgated into the Code of Federal Regulations and went into effect on Aug. 10, 2015. This interpretation clarified the ambiguity the Fifth Circuit addressed in Asadi.

The ambiguity was the result of there being two definitions of “whistleblower” under Dodd-Frank. One definition applies when an employee submits a tip directly to the SEC and the other applies when the employee only submits the tip to his or her supervisor. The Fifth Court held that an employee was not a whistleblower under Dodd-Frank unless they went directly to the SEC, thus not recognizing the second definition as defining a valid whistleblower.

The reason two different categories of whistleblower were stated was to help an employee understand which incentives they were entitled to receive. Three incentives are provided to encourage employees to report directly to the SEC: 1) possible monetary rewards, 2) confidentiality, and 3) protection against employment retaliation. However, if an employee decided to report the tip straight to their supervisor then they were not entitled to monetary rewards or confidentiality.

As of Aug. 10, 2015, both definitions are now in effect and the Whistleblower Anti-Retaliation Provision covers employees reporting directly to the SEC and employees reporting internally to a supervisor. This interpretation means that an employee can report concerns directly to their supervisor without the fear of employment retaliation.

If you have experienced any type of employment retaliation due to reporting a suspected wrong, or if you have suspicion that your company is violating Federal Law you can contact Beasley Allen for a free evaluation of your claim. We have the ability to report directly to the SEC on your behalf, which provides you with the possibility of monetary rewards and confidentiality. For more information about Whistleblower laws, contact Lance Gould at Lance.Gould@beasleyallen.com.

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