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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.

Despite the decision of the Supreme Court, it is important to recall that under the Sarbanes-Oxley Act employees who make only internal reports are still protected from retaliation. SOX has a shorter time to file a complaint, 180 days (a much shorter fuse than the 6-year limitations period applicable under Dodd-Frank), and these complaints must initially be filed with OSHA, rather than directly in federal court. But more importantly, employees who feel they can make internal reports are less likely to make reports directly to the SEC. Additionally, the SEC has publicly stated that companies that learn of compliance issues and self-report to the SEC are generally treated more favorably than those with violations the SEC learns of through other sources, including through its whistleblower program. So, to the extent this decision now incentives individuals to go directly to the SEC rather than reporting within the company, companies must emphasize their commitment to a culture that encourages employees to report any potential compliance issues within the company. That culture also needs to be one in which it is clear to all that retaliation for making such reports will not be tolerated.

Take this opportunity to review policies, procedures, training, and communications relating to reports of potential violations of law. Take some time to reiterate these procedures with your employees. Check your culture to make sure non-retaliation is an established part of it. Your most important policy just became that much more important.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.