On Wednesday this week, all nine justices agreed that the Dodd-Frank Act’s anti-retaliation provision does not extend to an individual who has not reported a violation of the securities laws to the Securities and Exchange Commission (“SEC”). In other words, making only internal complaints does not shroud an employee in whistleblower protection under the Dodd-Frank Act.
While the Dodd-Frank Act provides various protections to whistleblowers, federal courts have inconsistently interpreted who precisely qualifies as a whistleblower. In a much-anticipated opinion, the Second Circuit Court of Appeals held, in Berman v. Neo@Ogilvy LLC, that whistleblowers who report wrongdoing internally – but not to the Securities and Exchange Commission – are protected from retaliation under the law.
The Securities and Exchange Commission instituted cease and desist proceedings against KBR, Inc. for the purpose of entering an agreed Cease and Desist Order which is likely to affect the drafting of all confidentiality agreements entered into between a company and its employees. Indeed, the Order serves as a reminder to employers to carefully review and consider the language used not only in employee confidentiality agreements but also separation agreements, employment agreements, personnel handbooks and other documents which impose confidentiality restrictions on employees.
Some employers in the health care and other industries who regularly deal with the federal government and are subject to the False Claims Act (“FCA”) have felt helpless in trying to weed out serial whistleblowers in the hiring process. After all, most anti-retaliation provisions prohibit retaliation against both employees and applicants. For example, Title VII of the Civil Rights Act of 1964 expressly prohibits retaliation against both employees and “applicants for employment.” Therefore, it is unlawful under Title VII to refuse to hire an applicant for employment because she complained about discrimination in prior jobs. A recent Sixth Circuit decision in the case of Gary Vander Boegh v Energy Solutions, Inc., has confirmed, however, that job applicants who have a history of reporting alleged FCA violations do not enjoy the same protection: employers can lawfully refuse to hire an applicant because of his prior history as an FCA whistleblower. Continue Reading Sixth Circuit Decision Confirms that Employers May Lawfully Choose Not to Hire a Job Applicant with a Prior History as a False Claims Act Whistleblower
Written by Jessica Catlow
When most employers hear the word “whistleblower,” they think of their current employees and various anti-retaliation laws; however, under the SEC’s “Whistleblower Program,” the “whistleblower” may be a current or former employee. Indeed, as reported recently by The Wall Street Journal, retirees make up the largest group of individuals providing information under the Whistleblower Program.
As part of the Dodd-Frank Wall Street Reform and Consumer Protection Act signed into law in 2010, the Securities and Exchange Commission was tasked with establishing a “Whistleblower Program” to encourage individuals to report possible violations of the federal securities laws to the SEC. If the information reported leads to successful SEC action resulting in monetary sanctions (which is defined as including penalties, disgorgement, and interest) of at least $1 million, the individual is entitled to an award of between 10% and 30% of the monetary sanctions collected by the SEC against the company. According to The Wall Street Journal, to date, the Whistleblower Program has paid approximately $15 million to whistleblowers.
Under the program, an “eligible whistleblower” is a person who voluntarily provides the SEC with original information about a possible violation of the federal securities laws that has occurred, is ongoing, or is about to occur, and the person does not need to be employed by the company at issue. If the individual worked or works at a company that has an internal compliance and reporting process, and first reports the information internally, the individual is eligible for an award only if the individual reports the information to the SEC within 120 days of first reporting it internally.
What’s the moral of the story? First – to state the obvious – compliance is paramount. With the Whistleblower Program, employees, former employees and even industry observers and other outsiders are incentivized to help the SEC in its efforts to enforce securities laws. Second, it is important that all employers maintain comprehensive reporting and compliance systems that outline clearly the procedures to be followed in the case of suspected violations of securities laws and that encourage individuals to report the suspected violations or potential violations internally so that employers can address actual or potential violations early. Third, these policies should state clearly that employees may report violations or suspected violations both during and after employment. Finally, employers may consider including a copy of its compliance policy and internal reporting procedures with any paperwork given to employees upon separation.
Written by David Katz
Earlier this month, in Webb-Weber v. Community Action for Human Services, Inc., New York’s highest court overruled several appellate court cases in holding that an employee need not identify the specific law, rule or regulation allegedly violated by his or her employer in pleading a retaliation claim under New York’s whistleblower statute.