First there was Sarbanes-Oxley, then there was Dodd-Frank. The SEC’s whistleblower bounty program got underway. And now lawsuits filed to take advantage of expanded protection for employees and incentives for financial whistleblowers are reaching the decision stage.
Here’s an example of how one of these whistleblowers fared in court: Kramer v. Trans-Lux Corp., (D. Conn. September 25, 2012). Richard Kramer was fired by his employer Trans-Lux after he sent a letter to the SEC about irregularities he suspected in the company’s pension plan. He had complained internally, first to his supervisors and to the board, to no avail.
The company moved to dismiss Kramer’s claim in federal court in Connecticut on the basis that he did not follow the SEC’s prescribed reporting requirements (he didn’t use the SEC website or file a Form TCR), therefore was not entitled to protection under Dodd-Frank’s anti-retaliation provisions.
The court denied the company’s motion, making two important findings that should favor future whistleblower plaintiffs:
*Employees are protected from retaliation not only if they fail to follow the SEC procedures for whistleblower complaints, but even if they make no external report at all. Internal whistleblowers still receive the powerful protections of Dodd-Frank.
*A whistleblower will be protected under Dodd-Frank from retaliation even if there was no actual violation of a securities law. The employee need only have “a reasonable belief” that a violation has occurred.
Remember, Dodd-Frank applies to both private and public companies. It provides a generous statute of limitations: six years after the violation, or three years after the right of action was known or should have been known by the employee, in no case longer than ten years. The Act offers a wide array of remedies including reinstatement and back pay. And under Dodd-Frank, unlike Sarbanes-Oxley, a whistleblower can file a claim directly in federal court, rather than having to exhaust administrative remedies.
Practice pointers: these findings make a robust internal reporting program even more essential. Reports of misconduct must be thoroughly, objectively and confidentially investigated. Most important, management needs training on the enterprise’s zero tolerance policy towards retaliation. The catastrophic consequences for the company and the individual manager need to be spelled out.