by Russell E. Adler, Esq.
The Dodd-Frank Wall Street Reform and Consumer Protection Act, passed in the wake of the financial crisis, enacts significant reforms to the financial system. HR professionals need to become familiar with the law’s whistle-blower and anti-retaliation provisions.
Incentives for whistle-blowers
Dodd-Frank provides powerful financial incentives to employees and other potential whistle-blowers who voluntarily report suspected violations of the federal securities laws to the Securities and Exchange Commission (SEC).
If the SEC brings a successful enforcement action resulting in sanctions of $1 million or more, the whistle-blower will receive between 10% and 30% of the total monetary sanction. Whistle-blowers can bypass their company’s internal reporting and compliance policies and go directly to the SEC.
A whistle-blower is defined as someone who provides the SEC with information about a possible violation of federal securities law that has occurred, is ongoing or is about to occur—provided the whistle-blower has a reasonable basis for the belief. Retaliation is defined as discharge, demotion, suspension, direct or indirect threats, harassment or discrimination in the terms and conditions of employment. Protections apply regardless of whether the whistle-blower ultimately receives the potentially massive financial award.
What does this mean for HR? Let’s imagine an employee in accounting sends an email to her department head (bypassing her direct supervisor) about a possible securities law violation. The executive asks you how to address the situation. Here is what to do:
Err on the side of caution
Be inclusive when deciding whether the complaint or information constitutes protected activity. Dodd-Frank’s anti-retaliation provisions are broad.
Until an investigation clearly demonstrates otherwise, assume that the accounting employee would be considered a whistle-blower under the anti-retaliation provisions of the law and that she has a subjective, reasonable belief that misconduct occurred in violation of the law. There is substantial risk in hastily dismissing the complaint as without merit, absent strong supporting evidence.
Get the word out
Consider informing people in the employee’s supervisory chain, HR, compliance, the legal department and senior management that a complaint has been made.
You may divulge the identity of the whistle-blower, while simultaneously reiterating your company’s anti-retaliation policy. Reinforce that no employment action may be undertaken without consulting HR. Communicate that the complaint is being investigated in accordance with your policy. Ensure that everyone understands that they shouldn’t discuss the matter (orally or in writing) with the complainant or anyone else, except in the course of the company’s investigation.
Some practitioners advise informing only those who “need to know,” the logic being that a supervisor cannot retaliate if he or she does not know about the complaint. But there are two problems with this approach.
First, in the event of retaliation, the company would have to try to prove a negative—that the supervisor did not know about the complaint. It’s very difficult to prove a lack of knowledge.
Second, it is possible that the supervisor could learn independently about the complaint and retaliate. Proactively warning against retaliation limits the company’s liability.
Meet with the whistle-blower
Promptly thank the employee for bringing the matter to the company’s attention. Explain the company’s policy prohibiting retaliation and tell her that an investigation will begin shortly or is already under way. Provide the name of the person designated to address any concerns she has as the process moves forward, particularly if the employee believes she is being subject to retaliation.
Communication is key. If the employee perceives the company is disregarding or minimizing her complaint—quite likely if she is met with silence—she is more likely to perceive retaliation and go to the SEC. She might retain her own attorney if she has not already done so.
Stop retaliation immediately
If you learn of retaliation, take immediate steps to bring it to a halt. Tell the employee how you addressed the retaliation (without disclosing confidential personnel information), and why you believe the action you took was sufficient.
Then ask the employee if she thinks you adequately solved the problem. Let’s say you decided that the best course of action was to transfer the employee out of a retaliating supervisor’s department. Check to make sure she doesn’t perceive the move as a demotion—something that could be considered retaliatory by itself.
Following these simple steps should minimize the risk of retaliation claims and other employment-related claims relating to compliance with the Dodd-Frank law.
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Author: Russell E. Adler is of counsel in the Labor and Employment Practice Group of Pepper Hamilton LLP. Reach him at adlerr@pepperlaw.com or (212) 808-2750.
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