• Retaliation Litigation on the Rise: The SEC’s Broadening Interpretation of Dodd-Frank’s Whistleblower Provisions
  • August 25, 2015 | Author: Gordon L. Mowen
  • Law Firm: Spilman Thomas & Battle, PLLC - Charleston Office
  • The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Act”) instituted sweeping changes to the financial sector of American industry. In addition to increased federal oversight, the Act implemented a “whistleblower” protection designed to safeguard an employee who alerts the SEC of potential violations of securities law or participates in a government-lead whistleblower investigation from discipline or termination. The purpose behind this anti-retaliation provision is well-intended: An employer in the financial industry may not terminate or discipline an employee who reports improper financial practices to the government (i.e., “whistleblowing”). But the SEC’s recent broad interpretation of this rule now means that employees who report concerns to their supervisor or human resources, rather than merely to the SEC, now also are protected under this provision.
    Section 21(f) of the Act provides a cause of action to an employee who feels he or she suffered an adverse employment action for reporting suspected securities violations so long as that employee:
    1. provided information to the SEC;
    2. initiated, testified, or assisted in an investigation related to whistleblowing; or
    3. makes disclosures protected/required by SOX or any other applicable law, rule, or regulation under the jurisdiction of the SEC. 15 U.S.C. § 78u-6-(h)(1).
    It seemed clear on the face of this statute that these three activities all required that the employee/plaintiff have had some interaction with a third party (i.e., the government) and should not apply where an employee only discusses securities concerns internally to a supervisor. In other words, the provision does not extend to an employee who merely makes an internal report to his or her employer. See Asadi v. G.E. Energy, LLC, 720 F.3d 620, 630 (5th Cir. 2013).
    An example of this issue is the recent decision in Wiggins v. ING U.S., Inc., 2015 WL 3771646(D. Conn. June 17, 2015). Plaintiff Eva Wiggins was employed by ING until she was terminated in February 2013. Beginning in May 2008, Ms. Wiggins claims she spoke with her supervisor about some internal policies (including market value assessments) that she believed were incorrect and potentially violated SOX. Ms. Wiggins only claimed she discussed these concerns internally, and it was undisputed that she never attempted to report these issues to the Commission (or any external agency). Id. The Court found Ms. Wiggins could not qualify as a “whistleblower” under the Act because she had not attempted to involve the Commission and simply discussing her employer’s policies to her supervisor was not enough. Id.

    Despite this, in July 2015, the SEC published an interpretation of this rule stating that an employee/whistleblower need not adhere to Section 21(f)’s external reporting procedures to be afforded whistleblowing protection. Instead, an employee who raises the concern internally (for instance, to a supervisor or human resources) is entitled to protection. 17 CFR Part 241. (“[An employee] who reports internally and suffers employment retaliation [should] be no less protected than an individual who comes immediately to the Commission.”).
    The Commission’s position is problematic because it broadens the scope of the anti-retaliation provision to include potentially any employee who raises a concern regarding the operations of a business in the financial sector. As the United States Court of Appeals for the Fifth Circuit recognized, the removal of the Commission’s involvement (or any governmental agency) creates a broad, catch-all class of employees who may have no intention of “whistleblowing,” but instead raise non-protected concerns of a purely business nature. In fact, courts have already seen these lawsuits on their dockets and had outright dismissed them on the basis that internal complaints not involving the government could not have reasonably been viewed to constitute whistleblowing a perceived violation of securities law. See, e.g., Berman v. [email protected] LLC, 72 F. Supp. 3d 404, 408 (S.D. N.Y. 2014). Yet, under the Commission’s newly promulgated interpretation, employees who follow workplace protocol and discuss simple workplace concerns (much less, securities violations) with their supervisors now could have a cause of action under the Act should they experience an adverse employment action down the road.

    The expansion of this retaliation provision means in-house issues involving everything covered by Dodd-Frank, SOX, and any number of related regulations may well become the foundation of subsequent litigation for the disciplined or terminated employee. Put another way, it is now nearly impossible to discern where normal business operations end (i.e., routine workplace conversations between an employee and a supervisor, or an employee and human resources) and “protected activity” begins.
    Section 21F clearly protects employees who communicate with the government by way of making a report (traditional whistleblowing) or assisting in a whistleblowing investigation. Due to the Commission’s broadening interpretation of this provision, employees may assert a claim under this provision for mere workplace conversations and discussions. Simply put, this interpretation encourages litigation even where the policy behind the provision—a concerned employee reaching out directly to the government for help—is lacking. Employers covered under the Act (and SOX) must take note of this development because the Commission’s decision to find no distinction between internal and external reporting means routine internal complaints and discussions are now akin to full-blown whistleblowing.