Whistleblower rights are growing stronger. The recent award of a reward in excess of $100 million to a whistleblower will certainly attract those looking for financial reward. Dodd-Frank not only increased the chances of getting a reward, it also provided broader rights to employees and the courts are starting to rule strongly in favor of employees. A recent ruling highlights the new legal world of whistleblowers.
An employee wrote a letter to the Securities and Exchange Commission and reported that the company had failed to submit its 2009 amendment to the pension plan to its board of directors for approval and had failed to file its amendment with the SEC. The employee, Richard Kramer, was a human resources officer and member of the pension plan committee. Kramer had also told the company that there needed to be three member of the committee, not just the two in place at that time.
Kramer argues that as a result of his complaints, the company disciplined him, reduced his responsibilities, and eventually fired him.
The Dodd-Frank Act provides this protection against whistleblower retaliation:
No employer may discharge, demote, suspend, threaten, harass, directly or indirectly, or in any other manner discriminate against, a whistleblower in the terms and conditions of employment because of any lawful act done by the whistleblower —
(i) in providing information to the Commission in accordance with this section;
(ii) in initiating, testifying in, or assisting in any investigation or judicial or administrative action of the Commission based upon or related to such information; or
(iii) in making disclosures that are required or protected under the Sarbanes-Oxley Act of 2002, the Securities Exchange Act of 1934, including section 10A(m) of such Act, and any other law, rule, or regulation subject to the jurisdiction of the Commission.
A “whistleblower” is defined as “any individual who provides, or 2 or more individuals acting jointly who provide, information relating to a violation of the securities laws to the Commission, in a manner established, by rule or regulation, by the Commission.” 15 U.S.C. § 78u-6(a)(6)
The company first argues that Kramer is not a whsitleblower because he did not us the SEC’s new method of reporting on Form TCR. Mailing a regular letter is insufficient. The court did not believe that it is unambiguously clear that the Dodd-Frank Act’s whistleblower retaliation provision is limited to those individuals who have provided information relating to a securities violation to the SEC, and have done so in a manner established by the SEC. In the court’s view, the company’s interpretation would dramatically narrow the available protections available to potential whistleblowers. I suspect that the use of Form TCR will be required for whistleblower payouts, but not required for retaliation claims.
The company that argued that it had filed the form with the SEC on the date of the 2009 amendment to the plan. There was no securities law violation.
The court noted that in order to qualify for whistleblower protection the employee need only demonstrate that he reasonably believed there had been a violation. There need not be an actual violation of securities laws. The court found that the employee may have reasonably believed the company to be committing violations of SEC rules or regulations.
The ruling was just on the motion to dismiss and amend claims, so it is not over. It does appear to be the first Dodd-Frank whistleblower claim to survive a motion to dismiss in federal court. I expect it will not be the last.
- Federal Court Broadly Interprets Dodd-Frank Whistleblower Provision in Jim Hamilton’s World of Securities Regulation
- Kramer v. Trans-Lux Corp, DC Conn., No. 3:11cv1424 (SRU), Sept 25, 2012