Federal Protections for Employee Whistleblowers

Whether whistleblowers do it for moral reasons or for the money, there are protections under federal law in place in case they suffer adverse employment action as a result of their reporting. Depending on which statute the employee chooses to sue under or qualifies for, their rights, remedies and potential costs vary. Below are two of the protections presently available to whistleblowers in the securities industry.

A. DODD-FRANK

The Dodd-Frank Wall Street Reform and Consumer Protection Act contains a whistleblower incentive program, similar in some ways to the Federal False Claims Act. It provides incentives to whistleblowers who provide “original information” regarding violations of the securities laws, under specific circumstances. Section 21F, 15 U.S.C. § 78u-6.

Under Dodd-Frank, whistleblowers who provide the SEC with original information that leads to a successful enforcement action resulting in $1,000,000 or more in monetary sanctions may be eligible for a reward of between 10% and 30% of the amount of the monetary sanction collected. This money is paid from the Investor Protection Fund (“IPF”), which is a separate fund created for the purpose of paying rewards to whistleblowers under this provision. Congress created the IPF to ensure that the rewards paid to whistleblowers would not reduce the amount available to compensate victims of the fraud or other securities law violation.

Whistleblowers are protected by Dodd-Frank from adverse employment action for providing information to the Commission that are covered by Dodd-Frank or by SOX. See 15 U.S.C. § 78u-6(h)(1)(A). Employees may bring their action directly in Federal District Court. Id. at (h)(1)(B)(i). Such an action may be brought within 6 years of the violation or the three years after discovery of “facts material to the right of action are known or reasonably should have been known by the employee.” Id. at (h)(1)(B)(iii).

An employee who suffers adverse employment action may be entitled to reinstatement, double back pay with interest, and their costs, expert fees and reasonable attorneys’ fees. Id. at (h)(1)(C). No provision is made for the employer’s attorneys’ fees in case an action is dismissed. These Dodd-Frank provisions do not supersede any other rights held by the employee pursuant to Federal or State law, or by collective bargaining agreement.Id. at (h)(3).

B. SOX

Section 806 of SOX, 18 U.S.C. 1515A, provides whistleblower protection to employees who report up or out regarding accounting violations. § 1514A is limited to companies with publicly registered securities or who are required to file pursuant to Section 15(d) of the Securities Exchange Act of 1934 or are “nationally recognized statistical rating organizations.” See § 1514A(a). These companies cannot cause adverse employment action upon an employee who acts lawfully to provide information about which the employee “reasonably believes” constitutes a violation of sections 1341, 1343, 1344, or 1348 (18 USCS § 1341, 1343, 1344, or 1348), the SEC rules or regulations or any provision of federal law relating to fraud against shareholders. See § 1514A(a)(1).

An employee who believes they have suffered adverse employment action in violation of SOX’s whistleblower protection must first file with the Secretary of Labor within 180 days after the adverse employment action. See§ 1514A(b)(1)(A), (2)(D). The Secretary of Labor has 180 days to issue a decision. Id. at § 1514A(b)(1)(B). If no decision is forthcoming within that time, the employee may file the complaint in Federal District Court. Id.

Under SOX, the employee may recover “make whole” relief, including compensatory damages, reinstatement, back pay with interest and compensation for costs, expert fees and reasonable attorneys’ fees. Id. at (c). No provision is made for the employer’s attorneys’ fees in case an action is dismissed. Importantly, SOX’s whistleblower protections do not supersede any other statutory rights or collective bargaining agreement held by the employee. Id. at § 1514A(d).

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