Dodd-Frank Whistleblower Protections Addressed by 2nd Circuit
Author: Marta Moakley, XpertHR Legal Editor
September 14, 2015
The 2nd Circuit Court of Appeals has ruled that the Dodd-Frank Wall Street Reform and Consumer Protection Act's whistleblower protections may apply even if an employee did not disclose any violations directly to the Securities and Exchange Commission (SEC), but only disclosed information internally. The Berman v. Neo@Ogilvy LLC decision, which affects employers in New York, Connecticut and Vermont, is the latest to take an expansive view of Dodd-Frank's whistleblower protections.
The 2nd Circuit's 2-1 Berman decision sets up a circuit split that may lead the Supreme Court to resolve the dispute.
Dodd-Frank's Anti-Retaliation Provision
Courts have differed on whether Dodd-Frank's whistleblower protections protect those employees who have not disclosed their concerns to the SEC. Dodd-Frank defines a whistleblower as "any individual who provides . . . information relating to a violation of the securities laws to the [SEC]." 15 U.S. Code § 78u - 6.
In its 2013 Asadi v. G.E. Energy U.S., LLC decision, the 5th Circuit Court of Appeals interpreted the anti-retaliation provision to apply only to those individuals who provided information to the SEC. In doing so, the 5th Circuit rejected the SEC's view, which maintained that any employee who makes a good-faith disclosure regarding securities laws violations, whether internally or externally, would be protected against retaliation under Dodd-Frank.
Business groups, such as the US Chamber of Commerce, usually support a limited interpretation of the whistleblower definition.
In August, the SEC issued guidance that formalized its view that whistleblowers are protected under Dodd-Frank whether they blew the whistle internally or externally or both. The SEC explicitly disagrees with the Asadi decision in its guidance and maintains that taking a narrow view of retaliation protections would lead to those being available in an arbitrary manner.
The 2nd Circuit's Berman Decision
The SEC filed a friend-of-the-court brief in the 2nd Circuit's Berman decision, arguing that any ambiguity in Dodd-Frank's language should be resolved in favor of expanding protections for internal whistleblowers or those whistleblowers who did not report to the SEC in the first instance, but instead reported to another enforcement agency or perhaps a self-regulatory organization such as FINRA.
The 2nd Circuit agreed with the SEC's interpretation. In reversing the lower court's decision that only those employees who report to the SEC are protected under the statute, the 2nd Circuit reasoned that Dodd-Frank's whistleblower provisions are indeed ambiguous and, therefore, the court should defer to the SEC's implementing regulations and expertise on the matter.