On December 31, 2015, U.S. District Judge T.S. Ellis III denied an employee whistleblower protection
under the Dodd-Frank Act. Rather than reporting possible
wrongdoing directly to the U.S. Securities and Exchange Commission
("SEC"), the employee raised her concerns through
internal channels within her organization. The employee alleged
that the company retaliated against her for reporting what she
believed to be misconduct to a superior with oversight authority.
In dismissing the employee's claim, the District Judge adopted
a strict interpretation of the Dodd-Frank Act's
requirements for whistleblower protection. He stated that the
definition of a whistleblower is "unambiguous" and
restricted the eligibility of a "whistleblower" to
someone who brings information to the SEC. The
District Judge stated that "the SEC has adopted a definition
of 'whistleblower' for purposes of a Dodd-Frank retaliation
claim that is contrary to the plain language of [the applicable
section] insofar as the SEC's definition [in the interpretive
rule] does not require a whistleblower to provide the information
regarding violations of securities laws to the
The Court was referring to the SEC's own interpretive rule.
In August 2015, the SEC issued its interpretive rule which
includes a more expansive definition of a whistleblower in
order to clarify the applicable sections of the Dodd-Frank
Act dealing with retaliation against whistleblowers, which the
SEC acknowledged are ambiguous. Under the interpretive rule, the
SEC said that Dodd-Frank does not require an employee to
report directly to the SEC in order to qualify as a whistleblower
eligible for employment retaliation protections, and that internal
reporting through an organization's compliance protocol is
sufficient to trigger the protections.
The issue addressed by Judge Ellis is an important one; it goes
to the heart of the critical question of the impact of
government-administered whistleblower programs and companies'
internal compliance protocols.
In contrast to this decision, in September of last year, the U.S. Court of Appeals for the Second Circuit
held that the meaning of a whistleblower is
"ambiguous", stating that "[...] the pertinent
provisions of Dodd-Frank create a sufficient ambiguity to warrant
our deference to the SEC's interpretive rule". In fact,
the Court noted that a larger number of district courts have deemed
the statute ambiguous and have deferred to the SEC's
interpretation of a whistleblower, in contrast to the courts that
have ruled against the SEC's interpretation.
In Ontario, as we have
written previously, the OSC introduced a revised version of its
current proposal for the Whistleblower Program
("Proposed Program") in October 2015, which aims to
encourage reporting of securities law violations and enhance
securities enforcement efforts primarily by offering bounty-based
"awards" to whistleblowers who come forward to the OSC.
Eligible whistleblowers are entitled to a payment of up to $5
million. The OSC aims to have the program, which would be the first
of its kind in Canada, in place for this Spring 2016.
The ongoing questions in the U.S. about whistleblower
protections and the role of internal compliance protocols bear
directly on the OSC's proposal. As discussed in Osler's
most recent comment letter to the OSC on the Proposed Program,
the protection of whistleblowers should be of paramount importance
in any whistleblower policy the OSC adopts. Similarly, in
Osler's view, an OSC whistleblower policy should not undermine
internal compliance programs, and should instead require employees
to report misconduct internally at their organization before
reporting to the OSC, unless the employees demonstrate that it was
not reasonable or possible to do so in the circumstances.
The Proposed Program states that the OSC "expects"
that employers will not retaliate against employees who report
misconduct, whether that misconduct is reported directly to the OSC
or through the organization's internal compliance protocol.
Similarly, Staff have indicated that they intend to recommend
amendments to the Ontario Securities Act that will provide
protections to whistleblowers against retaliation by their
employers. In light of the U.S. experience, it will be important
that the OSC make clear that these protections explicitly cover
whistleblowers who report to internal compliance as well as
directly to the OSC.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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