USA: Developments in whistleblower employee protections

The last several months have seen several important developments related to whistleblower employee protections in the United States.

• In March 2014, the U.S. Supreme Court issued its first decision related to the Securities and Exchange Commission and the whistleblower protections of the Sarbanes-Oxley Act. In Lawson v. FMR LLC, the Court examined the question of who Congress had intended to serve as “gatekeepers” of fraud at public companies – a limited group of direct employees or millions of others with a less direct relationship to an employer. The Court held that the anti-retaliation protections of Sarbanes-Oxley extend not just to the employees of public companies, but also to the employees of contractors and subcontractors of public companies. This is widely viewed as a very expansive approach, but one that will leave public companies and their contractors (including accountants and lawyers) struggling to achieve more clarity in the future.

• While the bounty program for whistleblowers has been active at the SEC, it has been a slow start with the U.S. Commodity Futures Trading Commission. That changed in May 2014, however, when the CFTC awarded its first bounty to a whistleblower.

• In June 2014, the SEC issued its first ever charge of whistleblower retaliation under the Dodd-Frank Act, accusing a hedge fund advisor and owner of engaging in prohibited activities and then retaliating against a whistleblower employee who reported to the SEC. The employer settled the charge for $2.2 million. Notably, the SEC asserts authority to pursue anti-retaliation violations under a rule implementing Dodd-Frank, not the statute itself. The CFTC maintains that it does not have the same authority. This disparity is likely headed for the courts.

Disagreement rages on amongst federal courts regarding whether Dodd-Frank protects from retaliation of internal whistleblowers that do not make a report to the SEC. A case now pending in the Second Circuit Court of Appeals (covering New York) may result in a circuit split – leading the Supreme Court to decide the question.