Whistleblowing Claims Are Here To Stay

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Every year the Equal Employment Opportunity Commission (EEOC) releases statistics reflecting how often various claims are presented to them.  And every year one claim stands heads and shoulders above the rest: retaliation.  Last year, over 41% of all EEOC claimants brought a retaliation claim – far more than any other claim. Plaintiffs asserting retaliation claims cast themselves as whistleblowers and there is no claim that has more public or jury appeal than a whistleblower claim.  Think about it: the biggest news story of 2013 involved a supposed “whistleblower,” Edward Snowden, who made public classified information about NSA spying operations.  In fact, movies get made about whistleblowers far more than victims of discrimination or harassment; think Erin Brockovich (power plants), Frank Serpico (police corruption), Karen Silkwood (nuclear energy), and Jeffrey Wigand (tobacco).

What leads to whistleblowing?  Normally, it is just human nature.  As explained in a recent article New York Times op-ed piece, there is no instinct more human than wanting revenge.  And that is doubly true when someone is falsely accused.  But, the law allows retaliation claims even when an employee is retaliated against for making a complaint that is not legally viable, so long as he made it in good faith.

Those are the biggest reasons why retaliation and whistleblower claims are here to stay.  Congress, and state legislatures, have aided the frenzy by passing new laws which open new avenues for those juicy claims.  Here are some recent developments.

Dodd-Frank Whistleblower Claims

The most recent development in the law of retaliation is in the financial services industry.  In the wake of the financial crisis of 2007-2009, Congress passed the Dodd–Frank Wall Street Reform and Consumer Protection Act, a law which reformed the regulatory environment for banks and other financial institutions.  Like other major reforms, the Dodd-Frank law protects whistleblowers who either: (1) make good faith reports of violations of the law to their employer or the government; or (2) testify in a Dodd-Frank proceeding or object to or refuse to participate in an activity that they reasonably believe is a violation of Dodd-Frank.

The Occupational Safety and Health Administration (OSHA) is charged with enforcing those whistleblower protections and it just released interim regulations implementing the Dodd-Frank whistleblower protections.  Among other things, the regulations

Dodd-Frank established the Bureau of Consumer Financial Protection (CFPB) as the agency responsible for regulating the offering and provision of a variety of financial products or services for primarily personal, family, or household purposes, such as products or services related to residential mortgages, consumer credit cards, and debt collection, among others. Section 1057 of Dodd-Frank prohibits retaliation against an employee who has provided (or is about to provide) to their employer, the Bureau or other governmental authority, information relating to any act that they reasonably believe violates Dodd-Frank or other rule promulgated by the Bureau.

The proposed regulations fast-track Dodd-Frank whistleblower complaints.  Among other things, employers are required to respond to complaints within 20 days of notice and OSHA must issue a finding within 60 days.  OSHA’s Assistant Secretary has 210 days from the filing of complaint to issue a decision.  After receiving a decision (or if the Assistant Secretary does not meet his deadline), claimants can bring a civil action de novo in a federal district court.

Sarbanes-Oxley Retaliation Claims

The U.S. Supreme Court recently provided guidance on whistleblower claims under the Sarbanes-Oxley Act of 2002 (SOX).  In Lawson v. FMR LLC, the plaintiffs were employees of mutual fund investment advisers who provided investment advice to so-called “public investment companies,” generally mutual funds.  They claimed that they had been retaliated against for reporting shareholder fraud at the mutual funds.

Like Dodd-Frank, SOX also protects whistleblowers, as it prohibits “public companies” and their “officer[s], employee[s], contractor[s] or subcontractor[s]”  from taking an adverse action against an employee in the terms and conditions of employment because of any act of whistleblowing to an employer or to the government.

The court in Lawson was called upon to decide whether SOX applies only to “public companies” or whether it applied more broadly to investment advisors like the defendant in that case.

The Supreme Court found that SOX “extends to employees of contractors and  subcontractors,” not just employee of “public companies.”  Notably, the Court focused on the “mischief” which SOX was designed to prevent, namely accounting improprieties uncovered by the Enron scandal and found that the law should be interpreted broadly as a result.  So long as SOX claimants allege fraud that implicates shareholders of publicly held mutual funds, a whistleblowing claim will stand.

California Whistleblower Protection

Since 1984, California has prohibited employers from disclosing violations of state or federal law to a government or law enforcement entity.  This Whistleblower Protection Act was expanded in two ways: (1) it now applies to “internal whistleblowers,” i.e., employees who report violations to a “person with authority over the employee or another employee who has the authority to investigate, discover, or correct the violation”; and (2) it applies to violations of local laws, like city ordinances.   The amendment, passed as a part of S.B. 496, became effective this year.

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Retaliation for whistleblowing gets employers into hot water more than any other action and that is especially true in industries that, by their nature, are controversial or very lucrative.    Employers have to resist the human urge for revenge and need to make sure that their front line supervisors are trained to do the same thing.

Topics:  CFPB, Dodd-Frank, EEOC, Employer Liability Issues, OSHA, Retaliation, Sarbanes-Oxley, Whistleblowers

Published In: 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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