Bussing v. COR Clearing LLC: What Retaliation Protections Are Whistleblowers Entitled To?

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U.S. courts continue to disagree about the extent and coverage of protections from retaliation for “whistleblowers” under the Dodd-Frank Act.  Contrary to SEC rules and other District courts, in the 2013 Asadi case, the 5th Circuit Court of Appeals ruled that, to receive protection from retaliation under the Dodd-Frank Act, whistleblowers would have to first report to the SEC.  

The most recent court to take up this question (in May 2014) was the United Stated District Court for the district of Nebraska in Bussing v. COR Clearing LLC. In this case, the plaintiff participated in a FINRA investigation and was terminated. She alleged that she was retaliated against for providing requested information to the regulatory investigators over the objections of her employer.

In its ruling, the court broadened the definition of “whistleblower” to include internal reporters—or those who report to outside investigators other than the SEC—and therefore that these reporters are also protected from retaliation. (Learn more about common root causes of retaliation and how to prevent them.)

Bussing Argues that Reporting Internally Just Makes Sense

Bussing stands for the proposition that the whistleblower protections should be provided regardless of whether grievances are made internally first. TheBussing court points out that support for internal reporting is what Congress intended and that it makes sense for a number of reasons:

  • Early reporting gives companies an opportunity to quickly address the issue.  “It allows companies to remedy improper conduct at an early stage, perhaps before it rises to the level of a violation.”
  • “Requiring employees to report first to the SEC would also risk frustrating companies’ internal compliance programs, and could deter whistleblowers from participating in internal investigations.”
  • “Internal reporting may also prevent simple misunderstandings—where an employee is mistaken, and there has been no legal violation—from transforming into investigations that waste corporate and government resources. In other words, it will help vet the tips to the SEC, so that the SEC receives fewer and higher quality reports from whistleblowers.”

Even with the arguments in favor of protecting internal reporters, the court in Bussing recognized that there are some instances where internal reporting does not make sense. These exceptions are:

  • “[A]n employee knows that an internal report would be futile.”
  • “[O]r where there has been a clear and ongoing violation of the securities laws that calls for the SEC’s intervention.”
  • “Some whistleblowers might simply want some of the bounty money.”

Courts Agree That Whistleblower Bounty Hunters Must Still Report to the SEC

One area of agreement between the Asadi and Bussing courts addressed the qualification for a whistleblower cash bounty. The court in Bussingagreed with Asadi that to participate in the Dodd-Frank whistleblower bounty program, the employee must report to the SEC.

The court in Bussing reconciled its approach by pointing out that, “…nothing in the law requires an internal disclosure before reporting to the SEC. After all, Congress aimed to encourage whistleblowers to report to the SEC. But it does not follow that Congress intended to discourage internal reporting.”

Whistleblowers Will Still Face Uncertainty

While the courts still struggle to interpret the extent and protections of the Dodd-Frank Act as it relates to whistleblowers and protection from retaliation, reporters are still left with some uncertainty about what protections they have under Dodd-Frank.  The outcome may depend on the jurisdiction in which they reported or were employed. To ensure that they understand the ramifications of reporting, employees may need to seek advice prior to reporting.

Bottom Line:  Better To Invest in Prevention Than Litigation

While employees may face uncertainty until the whistleblower protections are finally sorted out, employers have a clearer path. Regardless of which judicial interpretation might apply, employers should focus on building and maintaining strong and effective compliance programs designed to train all employees to do the right thing and make it easy (and safe) for employees who might witness a compliance failure to report that failure to the company. (Read NAVEX Global’s research and recommendations on building a strong internal reporting system.)

Companies should have strong non-retaliation cultures supported by policies coupled with managers and supervisors trained to properly receive, investigate or escalate reports.  Ultimately, dollars and other company resources are best spent in preventing compliance failures than fighting litigation battles over reporting technicalities. 

(Access our free whitepaper on the foundational elements needed to create a strong culture of ethics, integrity and compliance.)

Topics:  Appeals, Chief Compliance Officers, Dodd-Frank, Employer Liability Issues, FINRA, Reporting Requirements, Retaliation, SEC, Training, Whistleblower Protection Policies, Whistleblowers

Published In: Civil Procedure Updates, Civil Rights Updates, Finance & Banking Updates, Labor & Employment Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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