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A New Whistleblower Retaliation Statute Grows Up: Dodd-Frank is the new Sarbanes-Oxley.

Posted in Highlight, Human Resources (HR) Compliance, Laws and Regulations, Litigation, Wage & Hour

Reading the headline, I’m sure a few of you rolled your eyes.  Dodd-Frank? Sarbanes-Oxley? Those statutes are seen as dull and tedious.  But a new federal court decision in Connecticut should start to change that, and it has implications for employers nationwide. 

The case is Kramer v. Trans-Lux, which you can download here. It addressed an employer’s motion to dismiss a claim of whistleblower retaliation under the Dodd-Frank Act. Ultimately, the court allowed the employee’s claim to proceed, noting that under the facts alleged, the employee has a viable claim.

What was the case about?  According to the applicable complaint (which the court assumed as true for purposes of deciding the motion), the plaintiff was a Vice-President of Human Resources with responsibility for ensuring that the company’s benefit plans were in compliance with applicable law.  He claimed that he expressed concern about the makeup and number of people on the pension plan committee and that he did not believe the company was adhering to its pension plan. 

He claimed that he contacted the audit committee and, importantly, claimed that he sent a letter to the SEC regarding the company’s failure to submit a 2009 amendment to the board of directors.  He then claimed that he was reprimanded and the subject of an investigation. Shortly thereafter, he was stripped of his responsibilities and later terminated.

What did the court decide? The employee made a claim under the new whistleblower retaliation claim available under the Dodd-Frank Act, 15 U.S.C. Sec. 78u-6(h)(1)(A).  Thus, the court first looked at whether the employee was a “whistleblower.” 

Suffice to say that the court found that this was not an easy question because the language of the act is not “unambiguous.”  Thus, the court next examined the SEC promulgated rule on the subject, which is set forth in 17 C.F.R. Sec. 240.21F-2(b)(1).  That regulation says that an employee is a whistleblower if the employee possesses a “reasonable belief that the information [he/she is] providing relates to a possible securities law violation” and that the complaint be provided in a manner described in the statute.

The court found it “a permissible construction” and rejected the employer’s arguments that it allows potential plaintiffs to pursue a claim under the Dodd-Frank Act that they would have otherwise pursued under Sarbanes-Oxley. 

The employer argued that the employee’s letter to the SEC was not a protected activity because the employee didn’t do so in a manner established by the SEC.  But the court rejected that too, finding the employee need only allege that he had a “reasonable believe that the information…relates to a possible securities law violation” and provide it in a manner described in the statute.  In other words, a letter is fine. 

The court then found that in order to obtain the protections of the statute, the conduct at issue did not need to have “actually” constitute a violation of the SEC rules; rather the whistleblower need only have a reasonable belief that it was a violation.  In this case, the e-mails and letters by the employee demonstrated that he “reasonably believed” the company was committing violations of SEC rules or regulations. 

What’s the Takeaway for Employers?

If you’re still with me, this case is important for two reasons. First, it breathes life into a statute that many people were convinced was not going to have much teeth. Indeed, by interpreting the statute as broadly as it did, the court opened the courts up to claims by people who have a “reasonable belief” in a securities law violation and who have merely notified the SEC of that. 

Second, the decision brings a bit of clarity to a law that was viewed as confusing and contradictory.  The decision is, by no means, the final word on the subject, but for those wondering if there would a viable avenue for claims under Dodd-Frank giving its confusing whistleblower retaliation provisions, the answer is a resounding “yes”. 

This is yet another new area of the law for employers. If you haven’t read up on Dodd-Frank (or are just now familiar with Sarbanes-Oxley), the decision should serve as a wake-up call that its provisions are real.