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Circuits Split Over Dodd-Frank Retaliation Provisions

Author: Dan Brecher|September 30, 2015

Questions regarding who is a whistleblower under the Dodd-Frank anti-retaliation provisions continue to divide the courts.

Circuits Split Over Dodd-Frank Retaliation Provisions

Questions regarding who is a whistleblower under the Dodd-Frank anti-retaliation provisions continue to divide the courts.

In Berman v. Neo@Ogilvy, a divided Second Circuit Court of Appeals broadly interpreted the statute to allow claims from internal tipsters that do not also notify the Securities and Exchange Commission (SEC). The decision directly conflicts with the Fifth Circuit Court of Appeal’s holding in Asadi v. G.E. Energy (USA), L.L.C.; so, the U.S. Supreme Court may have the final say.

As previously discussed on this blog, the Dodd-Frank Act expressly prohibits retaliation by employers against whistleblowers and creates a private cause of action for those who are discharged or discriminated against by their employers in violation of the statute. Under the statute, a “whistleblower” is defined as “any individual who provides, or 2 or more individuals acting jointly who provide, information relating to a violation of the securities laws to the [SEC], in a manner established by rule or regulation, by the [SEC].”

Another provision under Dodd-Frank

A separate provision of the Dodd-Frank Act prohibits retaliation against a whistleblower “because of any lawful act done by the whistleblower . . . in making disclosures that are required or protected under the Sarbanes-Oxley Act of 2002 . . . , [the Securities Exchange Act of 1934], section 1513 (e) of title 18, and any other law, rule, or regulation subject to the jurisdiction of the Commission.”

When read together, Dodd-Frank is ambiguous as to whether a whistleblower must complain directly to the SEC in order to qualify as a whistleblower and benefit from the law’s anti-retaliation protections. However, the SEC’s implementing rule provides protection from retaliation to workers who make protected disclosures regardless of whether they report the information to the SEC or another source.

Asadi

In Asadi, the Fifth Circuit refused to give deference to the SEC’s interpretative rule, holding that “the plain language of the Dodd-Frank whistleblower-protection provision creates a private cause of action only for individuals who provide information relating to a violation of the securities laws to the SEC.”

The majority of the Second Circuit disagreed, concluding that the SEC’s interpretation of Dodd-Frank’s whistleblower provisions is entitled to deference in light of the ambiguity. Accordingly, the appeals court overturned the trial court’s ruling that the provisions protect only employees discharged for reporting violations to the SEC and not those reporting violations only internally.

New York, New Jersey and Connecticut district courts are bound by the Berman decision. Therefore, until the U.S. Supreme intervenes (if it elects to do so), employers should be aware that whistleblowers that complain internally but do not report to the SEC may be entitled to Dodd-Frank whistleblower protection.

Circuits Split Over Dodd-Frank Retaliation Provisions

Author: Dan Brecher

In Berman v. Neo@Ogilvy, a divided Second Circuit Court of Appeals broadly interpreted the statute to allow claims from internal tipsters that do not also notify the Securities and Exchange Commission (SEC). The decision directly conflicts with the Fifth Circuit Court of Appeal’s holding in Asadi v. G.E. Energy (USA), L.L.C.; so, the U.S. Supreme Court may have the final say.

As previously discussed on this blog, the Dodd-Frank Act expressly prohibits retaliation by employers against whistleblowers and creates a private cause of action for those who are discharged or discriminated against by their employers in violation of the statute. Under the statute, a “whistleblower” is defined as “any individual who provides, or 2 or more individuals acting jointly who provide, information relating to a violation of the securities laws to the [SEC], in a manner established by rule or regulation, by the [SEC].”

Another provision under Dodd-Frank

A separate provision of the Dodd-Frank Act prohibits retaliation against a whistleblower “because of any lawful act done by the whistleblower . . . in making disclosures that are required or protected under the Sarbanes-Oxley Act of 2002 . . . , [the Securities Exchange Act of 1934], section 1513 (e) of title 18, and any other law, rule, or regulation subject to the jurisdiction of the Commission.”

When read together, Dodd-Frank is ambiguous as to whether a whistleblower must complain directly to the SEC in order to qualify as a whistleblower and benefit from the law’s anti-retaliation protections. However, the SEC’s implementing rule provides protection from retaliation to workers who make protected disclosures regardless of whether they report the information to the SEC or another source.

Asadi

In Asadi, the Fifth Circuit refused to give deference to the SEC’s interpretative rule, holding that “the plain language of the Dodd-Frank whistleblower-protection provision creates a private cause of action only for individuals who provide information relating to a violation of the securities laws to the SEC.”

The majority of the Second Circuit disagreed, concluding that the SEC’s interpretation of Dodd-Frank’s whistleblower provisions is entitled to deference in light of the ambiguity. Accordingly, the appeals court overturned the trial court’s ruling that the provisions protect only employees discharged for reporting violations to the SEC and not those reporting violations only internally.

New York, New Jersey and Connecticut district courts are bound by the Berman decision. Therefore, until the U.S. Supreme intervenes (if it elects to do so), employers should be aware that whistleblowers that complain internally but do not report to the SEC may be entitled to Dodd-Frank whistleblower protection.

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