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How companies can respond to New York whistle-blowers

In August 2014, the Securities and Exchange Commission announced the first award to an employee under its whistle-blowing program. While the case was met with great interest, it also showed a flaw in the program by inadvertently releasing reference material in the case, which was filed in August 2013. This allowed the media to connect the dots and find out who the complaint was made against.

The decision was also considered interesting because the employee worked in a compliance department. According to SEC rules, an award may not be given if information that leads to an investigation was gathered while performing compliance functions. However, in granting an award to the whistle-blower, it may provide incentive to companies to take action whenever an employee raises a complaint. Failure to tell the SEC of potential wrongdoing could lead to more financial penalties in the future.

Although the SEC ruled in favor of the whistle-blower in this case, there was no guidance given as to what a whistle-blower actually is. In other words, the courts have mostly declined to say whether an employee who only reports the prohibited actions internally is actually a whistle-blower. Therefore, it may be a good idea for employers to assume that information will be reported both internally and to the SEC.

An employee who reports misconduct to his or her managers may not be retaliated against for doing so. However, as there is no set definition of a whistle-blower, an employer may try to argue that no retaliation took place. Therefore, it may be worthwhile to consult with an employment law attorney who may be able to protect an employee's rights in court or through a settlement.

Source: Forbes, "Did The Summer Shine Any Light On Dodd-Frank Whistleblower Land?", Catherine Foti, September 11, 2014

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