Will the Latest Opinion by A District Court Adopting a Broad Definition of Who is a Whistleblower Encourage More Internal Reporting?

On Tuesday, another New York federal district court ruled that an employee need not report a disclosure directly to the Securities and Exchange Commission (“SEC”) to be afforded the protections under the anti-retaliation provisions of the Dodd-Frank Act, but that internal disclosures within a company are covered. In Murray v. UBS Securities, LLC, Judge Furman of the Southern District of New York adopted the reasoning of several recent district court decisions addressing the relationship between Dodd-Frank’s anti-retaliation provision and its provision defining “whistleblower.” In Murray, the defendants contended that the protections under Dodd-Frank applied exclusively to whistleblowers who provided information to the SEC; thus, the plaintiff was not a covered “whistleblower” for purposes of Dodd-Frank. Rejecting this argument, the court concluded that the Dodd-Frank Act requires that a plaintiff show that he or she either provided information to the SEC or that his or her disclosures fell under one of the four categories listed under 15 U.S.C. § 78u-6(h)(1)(A)(iii)including internal disclosures to company management made under the Sarbanes-Oxley Act (“SOX”).

In so holding, the court applied Chevron deference to the SEC’s interpretation of the Dodd-Frank Act, reasoning that the SEC’s final rule clarified an otherwise ambiguous statutory scheme. The court denied UBS’s motion to dismiss, allowing the plaintiff’s whistleblower retaliation suit to proceed.

Murray v. UBS is the latest in a recent string of federal district court cases interpreting Dodd-Frank’s anti-retaliation provisions broadly to include protection for internal reporting. While this decision may open up the doors to more claims by putative whistleblowers under Dodd-Frank, at least this broad view of Dodd-Frank’s anti-retaliation provision may encourage employees to report wrongdoing internally through hotlines or other compliance channels, thereby allowing companies an opportunity to investigate and remedy potential wrongdoing expeditiously. Although these decisions may ultimately increase exposure to whistleblower retaliation suits, employers should be cognizant of the opportunity to strengthen their current policies and procedures to encourage internal reporting while promptly and thoroughly investigating claims of wrongdoing. At the same time, companies must take proactive steps to ensure that there will be no retaliation against those who come forward and report wrongdoing, thereby avoiding potential liability under the anti-retaliation provisions of Dodd-Frank.

 

Topics:  Anti-Retaliation Provisions, Dodd-Frank, SEC, UBS, Whistleblowers

Published In: 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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