secIn response to the disagreement amongst courts regarding the scope of Dodd-Frank’s employment retaliation protections, on August 4, 2015, the SEC issued an “interpretive rule” clarifying that individuals who have not reported alleged misconduct to the SEC may nevertheless qualify as “whistleblowers”.

Section 922 of Dodd-Frank amended the Securities Exchange Act of 1934 to (i) establish a whistleblower bounty program administered by the SEC and (ii) prohibit retaliation by employers against whistleblowers.   Since Dodd-Frank’s passage, courts have grappled with the scope of the definition of “whistleblower”  under the anti-retaliation provision because the statute, on the one hand, prohibits retaliation against individuals who make “disclosures that are required or protected under” Sarbanes Oxley, the Exchange Act, 18 U.S.C. Sec. 1513(e), and “any other law, rule or regulation subject to the jurisdiction of the [SEC],” but, on the other hand, defines “whistleblower” as “any individual who provides … information relating to a violation of the securities laws to the Commission, in a manner established, by rule or regulation, by the Commission.”

In the wake of Dodd-Frank’s passage, the SEC promulgated legislative rules to implement the whistleblower bounty program.  The SEC promulgated two separate definitions of “whistleblower” – one for the bounty provision and another for the anti-retaliation provision.  The SEC’s definition of “whistleblower” for the anti-retaliation provision states that an individual must: (i) possess a reasonable belief that the information he/she is providing relates to a possible securities law violation (or, where applicable, to a possible violation of the provisions set forth in Dodd Frank) that has occurred, is ongoing, or is about to occur, and (ii) provide that information in a manner described in the statute.  The SEC’s rule further provides that “[t]he anti-retaliation protections apply whether or not you satisfy the requirements, procedures and conditions to qualify for an award.”  The SEC also promulgated procedures to be eligible to receive a whistleblower bounty award (Rule 21 F-9).  These procedures state that to be a “whistleblower,” individuals must submit information about a possible securities violation to the SEC.

On July 17, 2013, the Fifth Circuit Court of Appeals in Asadi v. G.E. Energy (USA), L.L.C., 720 F.3d 620 (5th Cir. 2013) held that the text of the statute requires that a “whistleblower” report an alleged violation to the SEC to be covered by Dodd-Frank’s anti-retaliation provision.  Some district courts have followed Asadi while others (including a recent decision by the Northern District of California) have rejected Asadi and held that an internal complaint of an alleged securities law violation is sufficient to invoke Dodd-Frank’s anti-retaliation protection.

In response to the growing disagreement amongst courts in the wake of the Asadi decision, the SEC issued an interpretive rule clarifying that for purposes of Dodd-Frank’s employment retaliation protections, “an individual’s status as a whistleblower does not depend on adherence to the reporting procedures specified in Rule 21F-9(a).”  In issuing its clarification, the SEC states that the definition of “whistleblower” for purposes of Dodd-Frank’s employment retaliation provision is “ambiguous” but that the SEC’s interpretation “best comports with our overall goals in implementing the whistleblower program.”  The SEC further states that “by providing employment retaliation protections for individuals who report internally first to a supervisor, compliance official, or other person working for the company that has authority to investigate, discover, or terminate misconduct, our interpretive rule avoids a two-tiered structure of employment retaliation protection that might discourage some individuals from first reporting internally in appropriate circumstances and, thus, jeopardize the investor-protection and law-enforcement benefits that can result from internal reporting.”

It remains to be seen whether courts (including those within the Fifth Circuit) will rely on the SEC’s interpretive guidance in construing the scope of Dodd-Frank’s anti-retaliation provision or whether they will continue to follow Asadi.  We may learn more soon as this issue is currently before the Second Circuit.

Print:
Email this postTweet this postLike this postShare this post on LinkedIn
Photo of Lloyd B. Chinn Lloyd B. Chinn

Lloyd B. Chinn is a partner in the Labor & Employment Law Department and co-head of the Whistleblowing & Retaliation Group. He litigates employment disputes of all types before federal and state courts, arbitration tribunals (e.g., FINRA, JAMS and AAA), and before administrative…

Lloyd B. Chinn is a partner in the Labor & Employment Law Department and co-head of the Whistleblowing & Retaliation Group. He litigates employment disputes of all types before federal and state courts, arbitration tribunals (e.g., FINRA, JAMS and AAA), and before administrative agencies in New York and across the country. Lloyd’s practice ranges from litigating compensation disputes to defending whistleblower, discrimination and sexual harassment claims. Although he represents employers in a wide range of industries, including law, insurance, health care, consulting, media, education and technology, he focuses a substantial portion of his practice on the financial services sector. He has tried to final verdict or arbitration award substantial disputes in this area.

Due to Lloyd’s litigation experience, clients regularly turn to him for advice regarding the full range of employment matters, including terminations, whistleblower policy and procedure, reductions in force, employment agreements, and employment policies. For example, in the wake of the financial crisis, he has counseled a number of firms through reductions in force and related bonus and deferred compensation disputes. Lloyd has also been retained to conduct internal investigations of allegations of workplace misconduct, including claims leveled against senior executives.

Lloyd has represented global businesses in matters involving Sarbanes-Oxley and Dodd-Frank whistleblower claims. He has taken an active role in the American Bar Association on these issues, currently serving as Co-Chair of the Whistleblower subcommittee of the ABA Employee Rights and Responsibilities Committee. Lloyd has spoken on whistleblowing topics before a numerous organizations, including the American Bar Association, ALI-ABA, Association of the Bar of the City of New York, and New York University School of Law. He has testified twice before Congressional subcommittees regarding whistleblower legislation and has also published blog postings, articles and client alerts on a variety of topics in this area, including the Dodd-Frank Act’s whistleblower provisions. Lloyd is a co-editor of Proskauer’s Whistleblower Defense Blog, and he has been widely quoted by on whistleblower topics by a number of publications, including the New York Times, the Wall Street Journal, the National Law Journal and Law 360.

Lloyd has also become active in the International Bar Association, presenting on a variety of subjects, including: the #MeToo movement, the COVID-19 pandemic and employment law, and cross-border harmonization of employment provisions in transactions. Lloyd also hosts a quarterly roundtable discussion among financial services industry in-house employment lawyers. He has also published articles and given speeches on a variety of other employment-law topics, including non-solicitation provisions, FINRA arbitration rules, cross-border discovery, e-discovery, and the use of experts.

Photo of Steven J. Pearlman Steven J. Pearlman

Steven J. Pearlman is a partner in the Labor & Employment Law Department and Co-Head of the Whistleblowing & Retaliation Group and the Restrictive Covenants, Trade Secrets & Unfair Competition Group.

Steven’s practice covers the full spectrum of employment law, with a particular…

Steven J. Pearlman is a partner in the Labor & Employment Law Department and Co-Head of the Whistleblowing & Retaliation Group and the Restrictive Covenants, Trade Secrets & Unfair Competition Group.

Steven’s practice covers the full spectrum of employment law, with a particular focus on defending companies against claims of employment discrimination, retaliation and harassment; whistleblower retaliation; restrictive covenant violations; theft of trade secrets; and wage-and-hour violations. He has successfully tried cases in multiple jurisdictions, and defended one of the largest Illinois-only class actions in the history of the U.S. District Court for the Northern District of Illinois. He also secured one of only a few ex parte seizures orders that have been issued under the Defend Trade Secrets Act, and obtained a world-wide injunction in federal litigation against a high-level executive who jumped ship to a competitor.

Reporting to boards of directors, their audit committees, CEOs and in-house counsel, Steven conducts sensitive investigations and has testified in federal court. His investigations have involved complaints of sexual harassment involving C-suite officers; systemic violations of employment laws and company policies; and fraud, compliance failures and unethical conduct.

Steven was recognized as Lawyer of the Year for Chicago Labor & Employment Litigation in the 2023 edition of The Best Lawyers in America. He is a Fellow of the College of Labor and Employment Lawyers.  Chambers describes Steven as an “outstanding lawyer” who is “very sharp and very responsive,” a “strong advocate,” and an “expert in his field.” Steven was 1 of 12 individuals selected by Compliance Week as a “Top Mind.” Earlier in his career, he was 1 of 5 U.S. lawyers selected by Law360 as a “Rising Star Under 40” in the area of employment law and 1 of “40 Illinois Attorneys Under Forty to Watch” selected by Law Bulletin Publishing Company. Steven is a Burton Award Winner (U.S. Library of Congress) for “Distinguished Legal Writing.”

Steven has served on Law360’s Employment Editorial Advisory Board and is a Contributor to Forbes.com. He has appeared on Bloomberg News (television and radio) and Yahoo! Finance, and is regularly quoted in leading publications such as The Wall Street Journal.

The U.S. Chamber of Commerce has engaged Steven to serve as lead counsel on amicus briefs to the U.S. Supreme Court and federal circuit courts of appeal. He was appointed to serve as a Special Assistant Attorney General for the State of Illinois in employment litigation matters. He has presented with the Solicitor of the DOL, the Acting Chair of the EEOC, an EEOC Commissioner, Legal Counsel to the EEOC and heads of the SEC, CFTC and OSHA whistleblower programs. He is also a member of the Sedona Conference, focusing on trade secret matters.