I write in response to a recent post discussing the Fifth Circuit's decision in Asadi v. GE Energy (USA) LLC("A Shift in Whistleblower Protections: New Incentives for Employees to Report to the SEC Directly" (Aug. 2, 2013)). The authors suggest that the decision may lead employees who would have reported compliance concerns internally to go directly to the SEC, and urges companies to voluntarily extend whistleblower protections to all employees who report matters internally.
GE did so long ago – long before Dodd-Frank, and long before Asadi's unfounded and misguided allegations. GE encourages employees to raise compliance concerns – anonymously, if they wish – with their manager, supervisor, Ombudsperson, or to Legal, Compliance, or HR. Prompt, thorough, and objective investigations are carried out in response to such concerns, and meaningful remedial actions undertaken whenever warranted. Retaliation of any kind for raising an integrity concern is absolutely prohibited and is grounds for discipline, up to and including termination.
While the authors of this post wisely urge employers to embrace strong open reporting and anti-retaliation policies like those that protect whistleblowers at GE, their concern about the potential effect of Asadi is misplaced. Asadi holds only that a whistleblower cannot acquire a private right of action under Dodd-Frank unless and until he or she has reported concerns to the SEC. This is the way the law is written, and this is the way the system should work: concerned employees should report internally first, and should only acquire a private right of action if the company fails to respond appropriately, thereby obliging them to report to the SEC. This does not leave a whistleblower unprotected: he or she could report anonymously, of course, and provisions of Sarbanes-Oxley (as well as other state and federal laws) provide protection to an employee making an internal report from the outset. A report to the SEC, triggering the additional Dodd-Frank protections, will likely follow quickly if a company fails to investigate or remediate in response to an internal report.
The Act's incentives are structured to encourage precisely this sensible sequence of reporting. It is important to remember that Dodd-Frank's anti-retaliation private right of action is linked to the Act's more publicized bounty provisions. While the bounties provide monetary incentive for employees to report potential violations to the SEC, they are also designed to encourage an employee to report to the company first: the amount of the reward may be increased for doing so, the employee may be given credit not just for his initial report but for any other misconduct that the company learns of in response to the concern, and the date of the report to the SEC will relate back to the date of the internal report. Whether motivated by loyalty to the company and confidence in its compliance program, or by financial self-interest, employees still have incentives through the bounty provisions to use internal reporting mechanisms and legal protection when they do so. Whistleblowers who are truly motivated by compliance concerns and the public interest should be satisfied with a robust, responsible internal response by the company; generating lawsuits through private rights of action, as well as bounties funded by the public, should be reserved for those situations in which a whistleblower needs to involve the SEC because the company has not done the right thing.
Congress wrote in Dodd-Frank that to be a whistleblower, one must report to the SEC, and the decision in Asadi unremarkably applied that unambiguous provision to uphold dismissal of a complaint by an individual who didn't satisfy this element of the law. The decision is unquestionably correct because the statute is unquestionably clear. And because Asadi failed to meet this threshold requirement, his allegations were never subjected to scrutiny. In fact, the core allegations in the complaint are untrue. Asadi was not retaliated against for raising a compliance concern. He never claimed to be a whistleblower until months after he had been terminated. That is why he did not go to the SEC with his concerns, and it is why he had no right to sue under Dodd-Frank. Existing laws and prudent company policies recognize that whistleblowers deserve protection against retaliatory actions by their employer. Nothing in Asadi changes the landscape.
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