Fifth Circuit Limits Whistleblowers Entitled to Protection
- The U.S. Court of Appeals for the Fifth Circuit has ruled that the anti-retaliation provision of the Dodd-Frank Act protects only whistleblowers who provide information to the Securities and Exchange Commission. Asadi v. G.E. Energy (USA), No. 12-20522 (5th Cir. July 17, 2013). The SEC, in contrast, takes the view that the statutory provision extends to individuals who provide information to persons or governmental authorities other than the SEC, and it reflected that understanding in its rules. At least three district courts have also taken the view that the anti-retaliation provision protects some individuals who do not make disclosures to the SEC.
Section 922 of the Dodd-Frank Act added Section 21F to the Securities Exchange Act of 1934, providing for financial awards to whistleblowers. A "whistleblower," for this purpose, must provide information relating to a violation of the securities laws to the SEC. Section 21F(h) of the 1934 Act provides a private right of action against employers who retaliate against specified actions. The anti-retaliation right is available to "whistleblowers," but the protected actions include making any disclosures that are required or protected under the federal securities laws, including disclosures that are not to the SEC.
The Fifth Circuit ruled that, under the plain language and structure of the Dodd-Frank Act, there is only one category of whistleblowers: individuals who provide information relating to a securities law violation to the SEC. Once an individual has become a whistleblower, he or she is entitled to protection for any of the protected actions, including those that have nothing to do with the SEC. Since the court found its interpretation of the statute to be unambiguous, it gave no deference to the SEC or its rules.
Should employers cheer the Fifth Circuit decision? The ruling does limit the number of employees with whistleblower protection to a seemingly more manageable number. On the other hand, it is another blow to internal compliance programs if employees have another incentive to bypass those programs and report concerns to the SEC as quickly as possible in order to secure protection against retaliation. It is also problematic that the court indicated that whistleblowers who do report to the SEC are entitled to protection against retaliation, even if the employer was unaware that the individual was a "whistleblower."
Unless the plaintiff seeks rehearing en banc or appeals to the Supreme Court, the ruling will control in the Fifth Circuit, which covers appeals from Louisiana, Mississippi, and Texas. The court's opinion is available online at
John M. Baker
Stradley Ronon Stevens & Young, LLP http://www.stradley.com
1250 Connecticut Avenue, NW, Suite 500
Washington, DC 20036
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