Who qualifies as a Dodd-Frank whistle-blower?

By Alison Frankel
September 28, 2012

When Congress passed the Dodd-Frank financial reform law in 2010, it provided broad protection for whistle-blowers. The law prohibited employers from retaliating against anyone who reported securities violations to the Securities and Exchange Commission, assisted in an SEC investigation or otherwise made disclosures required by the Sarbanes-Oxley Act of 2002 or any other securities law. Dodd-Frank also defined criteria for whistle-blowers: They are people who provide information about securities violations “in a manner established, by rule or regulation, by the Commission.” In August 2011, the SEC issued its final interpretation of Dodd-Frank’s provisions, requiring that whistle-blowers must have a reasonable belief that they’re reporting violations of securities laws and must follow specific procedures when giving that information to the commission.

If you think the SEC’s rule is an obvious construction of Dodd-Frank’s statutory language, think again. The confusion lies in the disparity between the whistle-blower provisions in Dodd-Frank and those in Sarbanes-Oxley, which is more concerned with internal reporting than blowing the whistle to the SEC. Both laws include reporting procedures and anti-retaliation protection, but the specific provisions are different. Sarbanes-Oxley, for instance, requires employees to exhaust administrative remedies before bringing a federal court action for retaliation. It also has a 180-day statute of limitations and restricts employees’ recovery to back pay, as opposed to Dodd-Frank, which has a six-year statute and allows double-pay claims. So, as Jackson Lewis noted last November in a motion to dismiss a Dodd-Frank whistle-blower retaliation suit against a company called Trans-Lux, if the SEC meant for everyone with a potential retaliation claim under Sarbanes-Oxley to sue instead under Dodd-Frank, it was impermissibly overriding SOX and congressional intent.

“It cannot have been Congress’ intent to protect internal complaints of retaliation under [Dodd-Frank]; otherwise SOX would be rendered obsolete,” the brief said. “If all SOX-protected activity were to fall within the scope of the [Dodd-Frank] whistleblower provisions, regardless of whether the employee provided information to the SEC, then all SOX claimants would arguably be able to file a whistleblower retaliation claim under [Dodd-Frank] instead of SOX.”

Trans-Lux argued that its onetime pension executive Richard Kramer simply wasn’t a Dodd-Frank whistle-blower. In early 2011, Kramer reported concerns about the administration of the company’s pension plan to corporate officials, and then, when he failed to provoke a response, to the audit committee of the company’s board. Shortly after informing the board of his concerns, he sent a letter to the SEC about the company’s failure to notify either its board or the commission of a 2009 amendment to the pension plan. Two months later he and several others in his department were fired. But according to Trans-Lux, Kramer did not submit his complaint to the SEC “in the manner established by the SEC.” His internal communications aren’t protected under Dodd-Frank, the company argued, and his letter to the SEC wasn’t in the form prescribed by the agency’s own rule.

But in an opinion Wednesday, U.S. District Judge Stefan Underhill of Bridgeport, Connecticut, said Trans-Lux was misinterpreting Congress’s intent. “The Dodd-Frank Act appears to have been intended to expand upon the protections of Sarbanes-Oxley, and thus the claimed problem is no problem at all,” Underhill said, citing a similar decision by U.S. District Judge Leonard Sand of Manhattan, ruling on an issue of first impression last May in Egan v. Tradingscreen. “Disclosures that are protected under Sarbanes-Oxley’s whistle-blower provisions are also protected under the Dodd-Frank Act’s whistle-blower provisions.” Kramer, Underhill ruled, qualifies as a Dodd-Frank whistle-blower. Underhill’s decision is in conflict with a ruling in June by U.S. District Judge Nancy Atlas of Houston, who ruled that a GE whistle-blower’s internal complaints did not qualify him for protection from retaliation under Dodd-Frank.

Kramer counsel Nicholas Woodfield of The Employment Group didn’t return my call. Trans-Lux counsel Sarah Baskin of Jackson Lewis declined comment.

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