Category Archives: Dodd-Frank Act

2nd Circuit Speaks On SEC Whistleblower Retaliation

pillarsOn September 10th, the 2nd Circuit Court of Appeals (New York, Connecticut and Vermont) handed down its decision in Berman v. Neo@Ogilvy, holding that an internal report of what an employee deems to be a securities law violation can protect him from retaliation under the Dodd-Frank Act.

The Act defines “whistleblower” as “any individual who provides … information relating to a violation of the securities laws to the Commission, in a manner established by rule or regulation, by the Commission.” (Emphasis added.)  And retaliation against “whistleblowers” is prohibited by the Act. However, the Act also prohibits retaliation against those making disclosures that are protected by the Sarbanes-Oxley Act, which provides protection for internal reports.  The Securities and Exchange Commission (SEC) has taken the position (in its regulations and interpretive rules) that although “whistleblower” is defined in the Act as an individual who provides information to the Commission, this other provision of the anti-retaliation section protects individuals who make an internal report to their employer.

In 2013, the 5th Circuit (Texas, Louisiana and Mississippi) rejected the SEC’s position, and ruled that the plain language of the Act requires a covered “whistleblower” – an individual who provides information relating to a violation of the securities laws to the Commission. Thus, under the 5th Circuit’s holding an employee can’t base a retaliation claim on an internal report.

In this case, the 2nd Circuit disagreed with the 5th Circuit, giving deference to the SEC’s interpretation of the Act. According to the 2nd Circuit, employees do not need to report the alleged violations of securities laws to the SEC to be protected from retaliation under the Act.

Given the circuit split, it is quite possible that the issue will find itself before the Supreme Court. Until then, and regardless of what state(s) you operate in, we recommend that you carefully consider any employment action that follows an internal or external complaint of any kind to determine whether the complaint may be considered “protected activity” and whether taking the employment action opens you to a retaliation claim.

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