Whistleblower Protections of the Dodd-Frank Wall Street Reform and Consumer Protection Act

In 2011, employers should be prepared to address the many new whistleblower protections that were enacted by Congress in the previous year.  First and foremost among the sources of this expanded protection for whistleblowers is the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Act").  The Act, which was signed into law on July 21, 2010, adds vigorous new protections for employees who "blow the whistle" about suspected violations of the Act, federal securities laws, or other consumer protection statutes.  In addition, the Act enhances existing whistleblower provisions of the Sarbanes-Oxley Act of 2002 and the False Claims Act.

New Whistleblower Protection:  Bounty-Seekers for Securities Law Violations

Bounty Program

Section 922 of the Act authorizes the Securities & Exchange Commission (SEC) to award "bounties" to any individual who provides original information to the SEC that results in significant monetary sanctions.  This provision creates an incentive to individuals to come forward and report possible violations, and the bounty program has received considerable attention by commentators.  Less attention, however, has been paid to the broad whistleblower protections that accompany the reporting incentive program. 

Protected Individuals and Activities

A new private right of action is created for any whistleblower who has been discharged, discriminated against or subjected to other adverse employment actions because of reporting information to or participating in the SEC program.  This whistleblower protection covers any individual who:

• Provides information to the SEC relating to a securities law violation in accordance with the bounty-seeker provisions
• Participates in any investigation or judicial or administrative action of the SEC
• Makes a disclosure required or protected by Sarbanes-Oxley or any other law subject to the SEC's jurisdiction

Claims Process and Remedies

The Act allows a whistleblower subject to retaliation to bring suit directly in federal district court to seek damages suffered because of participation in this protected conduct.  A court may award reinstatement, double back pay with interest, and compensation for litigation costs, including attorneys' fees. 

Most notably, a lengthy statute of limitations is applied to whistleblower claims relating to securities violations.  Claims may be brought within a period of six years from the date of the alleged retaliation or within three years of the date material facts giving rise to the claim were known or reasonably should have been known to the claimant but not later than ten years from the date of the underlying retaliatory action.

Section 922 applies to any individual providing original information to the SEC on or after July 22, 2010.  While this section of the Act is already in effect, the SEC is still working to promulgate implementing rules.  The SEC issued proposed rules on the bounty provisions on November 3, 2010.  Many comments were received during the comment period, which closed on December 17, 2010, including ones on the effect that the bounty program could have on public companies' existing internal reporting and whistleblower programs.  The SEC is expected to issue final rules some time prior to its April 21, 2011 deadline.

New Whistleblower Protection:  Consumer Financial Products or Services

Covered Persons

Section 1057 of the Act prohibits a "covered person" from terminating or discriminating against any "covered employee" who engages in certain whistleblowing activities.  A "covered person" includes, with limited exceptions, any person or entity engaged in offering or providing a consumer financial product or service, such as by extending credit, servicing loans, or transmitting funds.

Covered Employees and Activities

The consumer financial products and services whistleblower provisions protect "any individual performing tasks related to the offering or provision of a consumer financial product or service" who engages in certain whistleblowing activities.  Protected activities by an employee include:

• Providing information to the employer, the Bureau, or any other government or law enforcement agency about an act or omission the employee reasonably believes is in violation of the Act, or any other law or rule subject to the jurisdiction of the Bureau
•  Testifying in any proceeding resulting from the enforcement of the Act or any other provision of law subject to the Bureau's jurisdiction
• Instituting any proceeding under any federal consumer financial law
• Objecting to, or refusing to participate in, any action the employee reasonably believes to be in violation of any law or rule subject to the Bureau's jurisdiction

Claims Process and Remedies

Employees who believe they have been discharged or discriminated against in violation of this whistleblower provision may file a complaint with the Department of Labor (DOL) within 180 days after the alleged violation.  The Act authorizes the DOL to investigate these complaints and order the appropriate relief upon finding that a violation has occurred. 

If the DOL does not issue a final order within 210 days after the date a complaint is filed, the claimant can bring suit in federal district court, where a jury trial is permitted.  Upon finding a violation, the DOL or a federal court may award to a successful claimant reinstatement, back pay, compensatory damages, and litigation costs and attorneys' fees.

The consumer products and services whistleblower protection also imposes an employee-friendly burden-shifting regime.  If the employee can establish a prima facie case by showing that his or her participation in a protected activity was "a contributing factor" in an adverse employment decision, then the employer has the burden to rebut the employee's prima facie case by clear and convincing evidence that it would have taken the same action in the absence of the employee's whistleblowing.

The Act provides that these rights and remedies cannot be waived by any agreement, policy, form, or condition of employment.  In addition, it  prohibits mandatory arbitration of a dispute arising under this whistleblower provision.  This provision of the Act becomes effective on July 21, 2011.

Enhanced Whistleblower Protections

In addition to the vigorous new whistleblower protections for employees reporting securities law violations and for employees providing financial products or services, the Act also enhanced a number of existing whistleblower provisions, including whistleblower protections under the Sarbanes-Oxley Act and the False Claims Act.

Sarbanes-Oxley

The Act clarifies that Sarbanes-Oxley's whistleblower provisions apply to employees of those subsidiaries or affiliates whose financial information is included in the consolidated financial statements of a publicly traded company.  It also expands the coverage of Sarbanes-Oxley's whistleblower provisions to employees of nationally recognized statistical ratings organizations, such as Moody's, Standard & Poor's, or Fitch Ratings.

The Act made significant changes to the procedural elements of Sarbanes-Oxley's whistleblower provisions.  First, the Act increases the statute of limitations from 90 days to 180 days.  Second, the Act clarifies that the statute of limitations may not begin to run until the employee learns of the violation of Sarbanes-Oxley.  Third, the Act clarifies that there is a right to a jury trial.  Finally, the Act provides that an employer cannot require arbitration of a dispute arising under Sarbanes-Oxley's whistleblower provisions.

False Claims Act

The False Claims Act permits individual citizens to sue federal contractors on behalf of the federal government when a contractor has defrauded a federal program.  In such cases, the individual is entitled to keep a portion of any damages recovered and is protected from any retaliation by his employer.

Section 1079A of the Dodd-Frank Act expands the anti-retaliation provisions of the False Claims Act to prohibit associational discrimination, or more specifically, retaliation against the agents or associates of the whistleblower who take efforts to stop violations of the False Claims Act.  The Act also clarifies that the statute of limitations for whistleblower claims brought under the False Claims Act is three years from the date the retaliation occurred. 

Conclusion

The Dodd-Frank Act drastically expands the universe of whistleblower protections for employees.  Its expansion of existing whistleblower protections and creation of broad new federal causes of action for whistleblowers is expected to lead to a significant increase in the number of whistleblower claims.  In addition, new incentives for reporting potential securities law violations may lead to increased enforcement activity by the SEC.  In short, the Act promises to have a significant impact on employers in 2011 and in years to follow.  Thus, employers would be well advised to begin the new year by revisiting their internal reporting or whistleblower policies, reviewing discipline and discharge policies and procedures, and educating managers about these whistleblower protections.