Whistleblowers: Supreme Court, CFTC and Court Developments

Author: Marta Moakley, XpertHR Legal Editor

May 27, 2014

The Supreme Court has agreed to hear a case weighing the public's right to know with national security issues; the Commodity Futures Trading Commission (CFTC) awards its first bounty under its whistleblower program; and the circuits continue to debate Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank) and Sarbanes-Oxley Act (SOX) whistleblower provisions. The increased activity regarding whistleblower cases both in the courts and by enforcement agencies continues to highlight the importance for employers of emphasizing ethical and non-retaliatory practices in the workplace in order to minimize liability risks in this area.

Supreme Court Accepts Case

The Supreme Court has agreed to hear arguments in Department of Homeland Security v. MacLean, a case that pits a federal employee whistleblower's right to voice concerns over safety issues with national security matters. The Obama administration had requested that the justices review a lower court's decision regarding a former federal air marshal who went to the media and publicly disclosed internal security plans. The employee had been briefed about budgetary cutbacks affecting the amount of air marshal shifts despite the nation remaining under a terrorist threat. Because of the employee's leak and the ensuing public outrage, the Department promptly canceled the order. The lower court had held that the former air marshal was entitled to argue that he was entitled to whistleblower protection.

The Supreme Court last addressed whistleblowers during its current term, in a decision that expanded SOX's protections to cover employees of public company contractors and subcontractors.

Whistleblower Bounty Award

The CFTC has announced that it has awarded its first bounty under its whistleblower program, which was created by Dodd-Frank (as was the Security and Exchange Commission's program). The whistleblower will receive approximately $240,000 for providing valuable information regarding violations of the Commodity Exchange Act (CEA).

The CFTC pays awards to eligible whistleblowers who voluntarily provide information regarding violations of the CEA that lead to more than a $1 million recovery in an enforcement action. A whistleblower will be awarded between 10 and 30 percent of any monetary sanctions collected.

There are detailed rules that a whistleblower must follow to receive an award. In fact, the failure to follow agency rules has resulted in other whistleblowers being denied bounties. Acting Director of the CFTC's Division of Enforcement Gretchen Lowe said in a statement, "Here, the whistleblower provided specific, timely and credible information that led to the Commission bringing important enforcement actions. The CFTC's Whistleblower Program is attracting high-quality tips and cooperation we might not otherwise receive and is already having an impact on the Commission's enforcement mission."

Generally, there are limited details available regarding the circumstances that gave rise to a Dodd-Frank bounty award - mainly to protect the identity of the person who came forward to disclose information and to protect against retaliation.

Circuit Cases and Splits

Employees have encountered less success in arguing their cases before certain federal appeals courts.

  • The 6th Circuit Court of Appeals held in Sexton v. Panel Processing, Inc. that ERISA's whistleblower provision (Section 510) only protects those employees who give information or testify in any inquiry or proceeding related to the Act, but not those who come forward and freely provide information about a potential unlawful practice.
  • The 4th Circuit Court of Appeals upheld a trial court's dismissal of an employee's complaint under SOX's whistleblower provision in Feldman v. Law Enforcement Associates Corp. The employee has engaged in an activity protected by SOX (i.e., complained about potential shareholder fraud and other ethics violations to government agencies) but failed to show that the activity was related to his termination.
  • There continues to be a so-called "split" among district and circuit courts regarding whether SOX's whistleblower provision covers only fraud on shareholders or covers other types of fraud as well (e.g., mail, wire or bank fraud).
  • The law continues to be unsettled on whether an employee is protected when reporting a complaint internally but not directly to the SEC. Although some courts have followed the 5th Circuit's holding that an employee must provide information to the SEC to be protected, others have not. The 2nd Circuit will weigh in on the issue later this year in Liu v. Siemens AG (in addition to the question of whether whistleblower protections apply to employees outside of the US).