The newly-enacted Dodd-Frank Wall Street Reform and Consumer Protection Act (H.R. 4173) contains sweeping new provisions which create new whistleblower protections for employees in the financial services industry. These enhanced protections, among other things, create a new incentive program to encourage individuals to report Securities Exchange Act violations; allow aggrieved employees to bring a civil action in court; and establish a more stringent burden-shifting approach to certain whistleblower claims. The new law also includes provisions that impact mandatory pre-dispute employment arbitration agreements of whistleblower retaliation claims. Finally, the new law amends other statutes like Sarbanes-Oxley and the False Claims Act to provide broader protection to whistleblowers. Additional information on existing whistleblower laws is available in the national treatise entitled “Retaliation and Whistleblowing: A Guide for Human Resources Professionals and Counsel” (3rd edition 2010) by Littler Shareholder Greg Keating.

A discussion of the new provisions follows:

• Section 922 – Whistleblower protection. This section amends the Securities Exchange Act to establish a new securities whistleblower incentive and protection program. In essence, it provides monetary rewards to those who contribute original information that leads to recoveries of monetary sanctions of $1,000,000 or more in criminal and civil proceedings. This program awards whistleblowers with between 10% and 30% of any monetary sanctions that are collected, based on the original information provided by the whistleblower. “Original information” is defined as information that is derived from the independent analysis or knowledge of the whistleblower and is not derived from an allegation in court or government reports nor exclusively from news media. The Securities and Exchange Commission (SEC) has discretion in determining the amount and whether or not a whistleblower is to be awarded. This section also includes various protections for whistleblowers, including a prohibition on discharging, demoting, suspending, threatening, harassing (directly or indirectly) or otherwise discriminating against an employee for providing information to the SEC or assisting in an investigation or judicial or administrative action relating to the information provided. The bill would allow one who has been retaliated against to bring an action against his or her employer in federal court for reinstatement, double back pay plus interest, and attorneys’ fees and litigation costs. The legislation provides that no pre-dispute arbitration agreement shall be valid or enforceable if it requires arbitration of a dispute arising under this section.
• Section 748 – Commodity Whistleblower Incentives And Protection. This section would amend the Commodity Exchange Act by adding a “Commodity Whistleblower Incentives and Protection” section that provides whistleblower incentives and protections similar to those set forth in Section 922.
• Section 1057 – Employee Protection. This section provides protection against firings of, or discrimination against, employees who provide information or testimony to the Bureau of Consumer Financial Protection (CFPB or “Bureau”) – an independent consumer entity within the Federal Reserve created by the legislation. These new provisions, which are very broad in scope, stipulate that:

No covered person or service provider shall terminate or in any other way discriminate against, or cause to be terminated or discriminated against, any covered employee or any authorized representative of covered employees by reason of the fact that such employee or representative, whether at the initiative of the employee or in the ordinary course of the duties of the employee (or any person acting pursuant to a request of the employee), has –

(1) provided, caused to be provided, or is about to provide or cause to be provided, information to the employer, the Bureau, or any other State, local, or Federal, government authority or law enforcement agency relating to any violation of, or any act or omission that the employee reasonably believes to be a violation of, any provision of this title or any other provision of law that is subject to the jurisdiction of the Bureau, or any rule, order, standard, or prohibition prescribed by the Bureau;

(2) testified or will testify in any proceeding resulting from the administration or enforcement of any provision of this title or any other provision of law that is subject to the jurisdiction of the Bureau, or any rule, order, standard, or prohibition prescribed by the Bureau;

(3) filed, instituted, or caused to be filed or instituted any proceeding under any Federal consumer financial law; or

(4) objected to, or refused to participate in, any activity, policy, practice, or assigned task that the employee (or other such person) reasonably believed to be in violation of any law, rule, order, standard, or prohibition, subject to the jurisdiction of, or enforceable by, the Bureau.

A “covered employee” would include any individual performing tasks related to the offering or provision of a consumer financial product or service. Any predispute arbitration agreement would be deemed invalid and unenforceable to the extent that it requires arbitration of a dispute arising under this section.

An employee aggrieved under this section would have 180 days to file a complaint with the Secretary of Labor. An employee would have a viable cause of action if the Secretary determines that any of the employee’s actions described in paragraphs (1) – (4), above, constituted a “contributing factor” to the alleged adverse employment action. In its defense, an employer would have to demonstrate “by clear and convincing evidence” that it would have taken the same adverse actions regardless of the employee’s conduct. This new burden-shifting framework is advantageous to the employee.

• Section 929A – Protection For Employees of Subsidiaries and Affiliates of Publicly-Traded Companies. This section extends the whistleblower protection provisions in the Sarbanes-Oxley Act of 2002 (“SOX”) to employees of subsidiaries and affiliates of publicly-traded companies whose financial information is included in the consolidated financial statements of such companies. Section 806 of the Sarbanes-Oxley Act creates protections for whistleblowers who report securities fraud and other violations.
• Section 1079A – Financial Fraud Provisions. This section amends the False Claims Act (FCA) by, among other things, expanding protected whistleblower conduct under the FCA to include an “agent or associated others in furtherance of an action under this section.” In essence, the provision clarifies that those “associated” with the whistleblower are protected by the FCA. Additionally, the amendment allows a civil action to be brought in this instance within three years after the date of the act of discrimination or retaliation.

The Dodd-Frank Wall Street Reform and Consumer Protection Act ushers in a new era of accountability and transparency for Wall Street and beyond. The whistleblower provisions in the new law necessitate even greater emphasis on compliance policies and practices by affected employers.

For more information on these provisions, see Littler's Insight:  Cementing a Trend: Financial Reform Act Dramatically Expands Whistleblower Protections by Gregory C. Keating, Eric A. Savage, Ilyse W. Schuman, Roberta Limongi Ruiz and Amy E. Mendenhall.

This entry was written by Ilyse Schuman and Greg Keating.

Photo credit: Lkmorlan