Whistle-Blowers Must Arbitrate Under Dodd-Frank

By Randi J. Ensley Jan 9, 2015
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An employer may enforce an agreement to compel an employee to arbitrate a Dodd-Frank whistle-blower retaliation claim. Such claims are not statutorily exempt from enforcement under the Dodd-Frank Wall Street Reform and Consumer Protection Act, according to the 3rd U.S. Circuit Court of Appeals.

Dodd-Frank amends a number of statutes designed to regulate the financial industry and contains a provision that bars employers from retaliating against whistle-blowers. Although similar in some respects to the anti-retaliation provisions in the Sarbanes-Oxley Act of 2002, the Dodd-Frank anti-retaliation provision creates a separate cause of action, which is different in a few important ways. In particular, the Dodd-Frank provision contains a longer statute of limitation, does not require a potential plaintiff to exhaust administrative remedies before asserting a private action and provides prevailing plaintiffs with double back pay. Dodd-Frank also amended Sarbanes-Oxley's anti-retaliation provision by invalidating pre-dispute agreements to arbitrate claims and added an identical anti-arbitration provision to the Commodity Exchange Act and similar language to the Consumer Financial Protection Act of 2010. However, the Dodd-Frank anti-retaliation provision itself remains without an anti-arbitration provision.

Boris Khazin, a former investment oversight officer, commenced a lawsuit against his employer, TD Ameritrade Holding Corp., alleging, among other things, that it terminated his employment in retaliation for whistle-blowing activity in violation of Dodd-Frank. Khazin claimed that he reported to his supervisor that the pricing of a product offered by his employer violated securities regulations and that he recommended changing the price to comply with applicable regulations, but that his supervisor asked him not to fix the problem and to stop sending her e-mails on the topic. Khazin was fired shortly thereafter. TD Ameritrade moved to compel arbitration of Khazin’s Dodd-Frank whistle-blower claim pursuant to the parties’ pre-dispute arbitration agreement, asserting that Dodd-Frank’s anti-retaliation provisions a) did not apply to Khazin’s Dodd-Frank retaliation claim, and b) should not be applied retroactively.

The district court granted TD Ameritrade’s motion on the grounds that Dodd-Frank’s anti-arbitration provisions do not retroactively bar pre-dispute arbitration agreements. Because the parties executed the arbitration agreement prior to Dodd-Frank’s enactment, the district court dismissed the lawsuit and compelled arbitration. The court passed on the issue of whether Dodd-Frank’s anti-arbitration provisions applied to Khazin’s Dodd-Frank retaliation claim.

On appeal, the 3rd Circuit affirmed the decision compelling arbitration, but based its ruling on a different line of reasoning. The 3rd Circuit relied on a textual analysis of Dodd-Frank to determine that Khazin’s claim, which was brought under Dodd-Frank, was not subject to the anti-arbitration provision at all. Although the Dodd-Frank Act created a separate private cause of action for whistle-blowers, its anti-arbitration provision is expressly limited to whistle-blower retaliation claims brought under the Sarbanes-Oxley Act and analogous anti-arbitration provisions contained in the Commodity Exchange Act and the Consumer Financial Protection Act. However, the law contains no such provision with respect to Dodd-Frank whistle-blower retaliation claims. Khazin argued that Congress did not intend to leave this gap, because the Dodd-Frank law is large and complicated and generally prohibits arbitration. The court reasoned that this omission was deliberate, nevertheless, given that Congress added such provisions in other contexts.

Khazinv.TD Ameritrade Holding Corp., 3rd Cir No. 14-1689 (Dec. 8, 2014).

Professional Pointer: This case affords an additional incentive for employers to consider having employees sign arbitration agreements. Arbitration may be particularly attractive for employers in whistle-blower cases under Dodd-Frank because it allows an employer to avoid having sensitive issues involving corporate governances aired in a public forum.

Randi J. Ensley is with Bullard Smith Jernstedt Wilson, the Worklaw® Network member firm in Portland, Ore.

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