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Managing the Modern Workplace
V&E International Labor & Employment Resources

SEC’s Safe-Harbor Whistleblower Provision Proves Treacherous to Companies

The U.S. Securities and Exchange Commission (“SEC”) made additional waves since last month’s post, by recently announcing the first monetary award under the Dodd-Frank safe-harbor provisions. The Dodd-Frank Act allows individuals who report information about possible securities violations to the SEC to recover an award of between 10 and 30 percent of any sanctions levied of more than $1 million. To qualify for an award as a whistleblower, the information provided must be “original.” This means that the SEC needed to receive the information from the whistleblower first, and not from another agency. There is an exception to this rule however (called the “safe harbor”): As long as the whistleblower sends the information to the SEC within 120 days after first reporting the same information to another agency, then the SEC will treat the information as original.

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The SEC Is Upping the Ante and "Whistles" Are Getting Expensive

Following the financial crisis and the discovery of Bernie Madoff’s Ponzi scheme, Congress passed the Dodd Frank Act, which expanded substantially the SEC’s whistleblower program and established the SEC’s Office of the Whistleblower. Under this new regulatory scheme, whistleblowers were eligible to receive an award of between 10 and 30 percent of the monetary sanctions collected, including any sanctions that might be levied in parallel investigations brought by other regulators including DOJ. Since 2010, the SEC has awarded whistleblowers a number of large awards, including several awards in the multi-million dollar range, the largest of which until now was for $30 million in 2014.

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Blowing the Whistle on Inadequate Reporting Policies and Procedures

As you may have heard, the Supreme Court decided last week that Dodd-Frank’s whistleblower protections (along with its 6-year statute of limitations and direct-to-court enforcement procedure) only extend to employees who have provided information about securities law violations to the SEC. This result may give a false sense of security to some employers who may wrongly conclude they can worry less about retaliation claims. In reality, however, the decision may encourage employees to go to the SEC first in order to gain the protections of Dodd-Frank and undermine the company’s ability to deal with potential compliance issues internally. Therefore, now more than ever, companies need to make sure that they have established procedures and policies that allow employees to make such complaints internally and a culture that encourages such internal reporting.

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SOX Liability From A Whistleblower Outside the United States? Maybe

It is natural (and logical) to assume that United States laws do not apply to an individual’s actions in another country. Although this is not always the case — federal discrimination laws, for example, cover U.S. citizens employed by U.S. employers in a foreign country — one would usually expect that conduct is governed by the law of the country where the alleged violation occurred. A recent Department of Labor Administrative Review Board (“ARB”) decision, however, held that Sarbanes-Oxley’s (“SOX”) whistleblower protections may also apply to employees stationed outside the United States.

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HR Checklist for the New Year

As labor lawyers, we tend to think of our professional years as starting and ending on Labor Day. In order to celebrate the new Labor year, I intended to send this post early last week, but a storm called Harvey got in the way. So in belated celebration of the new Labor year, I now provide to you a checklist for the coming year as our New Year gift.

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Contributors

Thomas H. Wilson

Thomas H. Wilson Partner

Christopher V. Bacon

Christopher V. Bacon Counsel

Sean Becker

Sean Becker Partner

Stephen M. Jacobson

Stephen M. Jacobson Partner

Martin C. Luff

Martin Luff Counsel

Lawrence S. Elbaum Partner

S. Grace Ho

S. Grace Ho Counsel

Jacob D. Ecker

Jacob D. Ecker Associate

Robert Sheppard

Robert Sheppard Associate