Whistle-Blowing Policies Needed in Response to Ruling

By Allen Smith Sep 17, 2015

A federal appeals court decision will make it much easier to bring whistle-blowing lawsuits and should be an impetus for employers to adopt whistle-blowing policies, Steven Pearlman, an attorney with Proskauer in Chicago, told SHRM Online.

“The stakes have really gotten much higher,” added Philip Berkowitz, an attorney with Littler in New York City, who said companies should have protocols in place to investigate internal whistle-blowing complaints.

Circuit Court Split

The 2nd U.S. Circuit Court of Appeals ruled Sept. 10, 2015, in Berman v. Neo@Ogilvy, No. 14-4626 (2015), that the Dodd-Frank Act does not only protect employees discharged for reporting violations to the Securities and Exchange Commission (SEC). The law also protects those who report violations internally.

However, the 5th Circuit held in Asadi v. G.E. Energy United States, 720 F.3d 620 (2013), that only those reporting violations to the SEC are protected by Dodd-Frank. The split at the appellate court level makes it likely that the Supreme Court will review the 2nd Circuit decision, Berkowitz said.

The fraud-based whistle-blowing claims that would typically have to be filed with the Occupational Safety and Health Administration under the Sarbanes-Oxley Act (SOX) may now, in the 2nd Circuit, be filed in court under Dodd-Frank for more generous remedies than SOX offers, he noted. Under Dodd-Frank, there is double back pay, remedies for emotional distress and payment of attorneys’ fees. Plus, the statute of limitations is much longer under Dodd-Frank than SOX—six to 10 years versus 180 days.

Incidentally, now an employer need not be a publicly traded company itself for the prohibitions on retaliating against whistle-blowers to apply, he elaborated. If an organization does business with a company that’s publicly traded, Dodd-Frank’s prohibitions on retaliation against whistle-blowers cover that entity as well, Berkowitz said, citing Lawson v. FMR, 134 S. Ct. 1158 (2014). So, if an accounting or law firm does business with a publicly traded company, its employees can bring a Dodd-Frank whistle-blower claim.

Stand-Alone Policy

A whistle-blowing protection policy can be Exhibit A when someone sues claiming retaliation, according to Pearlman.

The policy should include:

  • A statement that the company does not retaliate against people who complain about suspected fraud or unlawful conduct.
  • A note that any complaints that are made will be investigated.
  • A reference to the code of conduct, with a hyperlink to the code of conduct, if online.
  • The contact information of people in HR, compliance or ethics.
  • A list of multiple channels for making complaints (as is done for a harassment policy). Complaints do not need to be made to a supervisor.
  • A note that anonymous complaints may be made and will be taken as seriously as any other complaints.

“The risks are higher with the new decision,” Pearlman said, calling a stand-alone whistle-blower policy “a protective measure that inures to the benefit of a company.”

Investigation Protocols

Employers need to be “extra vigilant—listening, training, putting in place protocols for carrying out internal investigations,” Berkowitz said.

Managers need to be trained on how to recognize and respond to a whistle-blowing complaint. Appropriate people, such as those in HR and compliance, need to be notified in response to a complaint. A thorough investigation protected by the attorney-client privilege needs to be conducted and well-documented. Evidence should be preserved, and by all means, avoid retaliation, Berkowitz recommended.

And remediate if there was wrongdoing, he said, noting, “How you respond will be at the center of a lawsuit.”

Allen Smith, J.D., is the manager of workplace law content for SHRM. Follow him @SHRMlegaleditor.


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