Circuit Split over Dodd-Frank Protection for Corporate Whistleblowers Sarbanes-Oxley Act

Recent decisions from the federal courts of appeals for the Second and Fifth Circuits have disagreed about the extent to which corporate whistleblowers are protected from retaliation by their employers under the Dodd-Frank Act.

Dodd-Frank was passed in 2010 in the aftermath of the great recession and was intended to significantly reform the way financial enterprises are regulated in the United States. Among a host of reforms, Dodd-Frank creates incentives for corporate employees who believe they have knowledge of fraudulent or deceptive corporate practices to “blow the whistle” on the potentially illegal conduct. These laws build on and strengthen earlier reforms enacted as part of the Sarbanes-Oxley Act of 2002. In theory, the acts are supposed to protect corporate whistleblowers from retaliation by their employers, who may seek to terminate, demote, or otherwise retaliate against whistleblowers.

In interpreting Dodd-Frank’s anti-retaliation provision, courts have struggled to define precisely what forms of “whistleblowing” activity are actually protected. In July 2013, the Fifth Circuit applied a very narrow reading of the law, holding that Dodd-Frank protects only those employees who report their concerns to the SEC. See Asadi v. G.E. Energy (USA) L.L.C., 720 F.3d 620 (5th Cir. 2013). This decision leaves unprotected the many employees who report suspicious activity to their supervisor, their company’s HR department, an internal ethics hotline, or any law enforcement or regulatory agency other than the SEC. Many observers, lower courts, and the SEC itself disagreed with the Fifth Circuit’s narrow decision.

On September 10, 2015, the Second Circuit issued a decision directly rejecting the Fifth Circuit’s holding in AsadiSee Berman v. Neo@Ogilvie LLC, No. 14-4626 (2d Cir. Sept. 15, 2015). Contrary to Asadi, the Berman court held that Dodd-Frank’s whistleblower protection is not limited only to employees who report to the SEC. Under Berman, a much wider swath of whistleblowing activity, including internal complaints at the company and complaints to other outside groups, should be protected.

Given this clear split in authority between the two circuits, it’s likely that the Supreme Court will eventually weigh in on the issue. Until then, the level of protection afforded under Dodd-Frank may turn on which judicial circuit has jurisdiction over the whistleblower’s claims. However, for employees who have been retaliated against for reporting fraud, Dodd-Frank is not the only protection. Sarbanes-Oxley also prohibits retaliation, and may provide a remedy regardless of whether Dodd-Frank applies.