A federal appeals court on Thursday ruled that employees are covered by anti-retaliation provisions for whistleblowers provided by the Dodd-Frank Act even if they don’t file a report with the Securities and Exchange Commission.
The ruling, a 2-1 vote by a judicial panel of the 2nd U.S. Circuit Court of Appeals in New York, concerns a Daniel Berman, former finance director at Neo@Oglivy, a unit of advertising company WPP. Berman claims that after internally reporting a variety of accounting irregularities he was terminated in April 2013.
For about six months after he was fired, Berman did not report any allegedly unlawful activities to the SEC. In October 2013, after the limitations period on one of his Sarbanes-Oxley claims had ended, he provided information to the Commission. In January 2014, he sued Neo and WPP, alleging that he was discharged in violation of the whistleblower protection provisions of Section 21F of the Dodd-Frank Act and in breach of his employment contract.
Here’s where it all gets tricky. The Dodd-Frank Act, and the SEC rulemaking it required, uses ambiguous and arguably contradictory language, when addressing anti-retaliation protections. While the rule says that, “to be eligible for an award, you must submit original information to the Commission,” other language is not so clear cut. Elsewhere, the rule says: “For purposes of the anti-retaliation protections… you are a whistleblower if: you possess a reasonable belief that the information you are providing relates to a possible securities law violation that has occurred, is ongoing, or is about to occur.”
“The anti-retaliation protections apply whether or not you satisfy the requirements, procedures and conditions to qualify for an award,” the rule adds.
In Aug. 4, 2015, the SEC issued a release “to clarify that, for purposes of the employment retaliation protections provided by Section 21F of the Securities Exchange Act, an individual’s status as a whistleblower does not depend on adherence [to the reporting procedures specified in Rule 21F-9(a).] That view was echoed in an amicus brief filed with the court.
In this week’s decision, the majority of judges agreed with the SEC’s assertion that whistleblower protections applied to Berman without his having to go to the regulator.
Judge Dennis Jacobs, however, in his dissenting opinion, took issue with the legal interpretation offered by his colleagues. “The majority and the SEC have altered a federal statute by deleting three words—“to the Commission”—from the definition of “whistleblower” in the Dodd-Frank Act,” he wrote. “No doubt, my colleagues in the majority, assisted by the SEC or not, could improve many federal statutes by tightening them or loosening them, or recasting or rewriting them. I could try my hand at it. But our obligation is to apply congressional statutes as written. In this instance, the alteration creates a circuit split, and places us firmly on the wrong side of it.”
“Given this new development, employers are advised to review their internal reporting policies and to proceed with caution when disciplining or terminating an employee that has raised internal complaints,” says Greg Keating, chair of the whistleblower practice group at law firm Choate, Hall & Stewart. “Employers should consult with employment counsel and stay apprised of new developments in this area, especially since the circuit split [the 5th Circuit previously ruled against a whistleblower in a simiar case, Asadi v. GE Energy] could leave to an eventual Supreme Court decision.