Wolters Kluwer Law & Business Outlines Expanded Whistleblower Protections Under Dodd-Frank Act

Provisions Will Have Profound Impact on Employer-related Compliance

(RIVERWOODS, ILL., July 28, 2010) – While consumer protection is a main theme of the historic Dodd-Frank Act, it also significantly expands whistleblower protections, according to Wolters Kluwer Law & Business employment and securities law analysts. Wolters Kluwer Law & Business is a leading provider of research information and software solutions in key specialty areas for legal and business professionals, with products under the CCH and Aspen names (wolterskluwerlb.com).

“In protecting consumers and bringing greater transparency to financial systems lawmakers have expanded protections for whistleblowers reporting violations of securities law or violations of commodities law, and they have established new private rights of action to enforce them,” said Wolters Kluwer Law & Business Employment Law Analyst Cynthia L. Hackerott, JD. “Employers will need to be aware of how these changes could affect their organizations.”

Specifically, the Dodd-Frank Wall Street Reform and Consumer Protection Act includes significant amendments to the whistleblower protection provisions of the Sarbanes-Oxley Act of 2002 (SOX) and adds new private rights of action for whistleblowers.

Below, Wolters Kluwer Law & Business highlights key whistleblower provisions.

A Review of Changes to Whistleblower Rules

New whistleblower incentive program The whistleblower incentive program established within the Dodd-Frank Act requires the Securities and Exchange Commission (SEC) to generally pay a whistleblower in securities law actions leading to the recovery of more than $1 million a bounty of between 10 and 30 percent of the recovery. The bounties will be paid from a newly created “Securities and Exchange Commission Investor Protection Fund,” funded with undistributed sanctions from other SEC cases. The SEC cannot make an award under certain circumstances, such as when the whistleblower is a member, officer or employee of certain regulatory boards or government agencies.

Private right of action for securities whistleblowers – The Dodd-Frank Act amends the Securities Exchange Act of 1934 to generally prohibit employers from taking punishing acts (e.g., discharging, harassing) against an employee for providing information to the SEC; assisting in certain actions relating to that information; or making disclosures that are required or protected under SOX, the Securities Exchange Act or another law, rule or regulation subject to the jurisdiction of the SEC.

Several whistleblower-related changes to SOX While the Dodd-Frank Act keeps the enforcement mechanism for the whistleblower provisions of SOX largely intact, it does contain some significant amendments to SOX, including:

  • Expanded filing period – aggrieved employees will have 180 days to file a complaint with the Department of Labor’s Occupational Safety and Health Administration (OSHA), an increase over the 90-day filing period previously provided under SOX. And, the timely filing period now starts on the date on which the violation occurs or on the date on which the employee became aware of the violation. Previously, the clock started on the date on which the violation occurred, regardless of when the employee became aware of it.
  • Right to a jury trial – The new legislation clearly states that employees bringing claims under SOX have a right to jury trial.
  • Bans predispute arbitration agreements – The new law amends SOX to expressly prohibit the use of predispute arbitration agreements for SOX claims.
  • Expanded employee coverage – Previously, SOX generally covered only employees working for publicly traded companies, brokerage firm or contractors of publicly traded companies. The Dodd-Frank Act expands SOX coverage to include employees of “nationally recognized statistical rating organization[s]” as well as employees of subsidiaries of publicly traded companies in specific instances.

Apparent expansion of whistleblower remedies, time limits The Dodd-Frank Act also appears to provide employees greater remedies and more time to bring a claim for those who chose to pursue their SOX whistleblower claims through the Dodd-Frank Act’s amendments to the Securities Exchange Act. For example, the new Securities Exchange Act provisions allow for double back pay plus interest, while SOX allows only for back pay plus interest. Additionally, whistleblowers choosing to sue under the new law can seek remedies for violations of SOX while bypassing SOX’s requirement to exhaust administrative remedies with the Department of Labor before going to court. Also, SOX, as amended by the Dodd-Frank Act, now will require aggrieved employees to file a complaint with OSHA within 180 days of the alleged violation or of when the employee became aware of the violation, while the amended Securities Exchange Act now allows a whistleblower to bring a court action up to three years after becoming aware of the claim, or six years after the violation has occurred (provided the claim is brought within 10 years after the date of the violation).

According to Hackerott, several other whistleblower provisions are also included in the Dodd-Frank Act, including a new incentive program and a private right of action for commodity whistleblowers and new whistleblower protections for financial services employees. Additionally, the Dodd-Frank Act strengthens anti-retaliation provisions of the False Claims Act and calls for the SEC Inspector General to conduct a study on the whistleblower protections made under the new law.

“The Dodd-Frank Act contains historic and important federal whistleblower protections beyond any we have seen so far in the area of securities regulation. The interaction of existing Sarbanes-Oxley whistleblower protections and new protections enshrined in Dodd-Frank is particularly momentous, especially since there was little legislative debate on this significant development,” said Wolters Kluwer Law & Business Principal Securities Law Analyst Jim Hamilton, JD.

About Wolters Kluwer Law & Business

Wolters Kluwer Law & Business is a leading provider of research products and software solutions in key specialty areas for legal and business professionals, as well as casebooks and study aids for law students. Its major product lines include Aspen Publishers, CCH, Kluwer Law International and Loislaw. Its markets include law firms, law schools, corporate counsel, health care organizations, and professionals requiring legal and compliance information. Wolters Kluwer Law & Business, a unit of Wolters Kluwer, is based in New York City and Riverwoods, Ill. Wolters Kluwer is a market-leading global information services company.

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