Whistleblower Protection Rules: 5 Need-to-Know Developments for Employers

Whistleblowers – insiders who report corporate wrongdoing and fraud – are not new. But many of the laws that protect them are.

Perhaps not surprisingly, the protections granted by those laws continue to evolve. For your reference, here’s a look at five recent changes that employers need to know:

1. A federal court ruled that protections only apply when whistleblowers report directly to the SEC:

“In Asadi v. G.E. Energy (USA), L.L.C., the Fifth Circuit held that, to be protected under Dodd-Frank’s anti-retaliation provision, an individual must be a ‘whistleblower,’ which is defined by the statute as an individual who has made a report to the SEC. Notably, this holding directly conflicts with the SEC’s regulations interpreting the Act, as well as five district court decisions that had all held that employees who make internal reports to company management are protected under Dodd-Frank even if they did not make reports to the SEC.” (Orrick)

2. Health care employees are now protected under the Affordable Care Act:

“Section 1558 of the [Affordable Care Act] added Section 18C to the Fair Labor Standards Act to provide protections to employees who are subject to retaliation for reporting potential violations of the law’s consumer protections (e.g., the prohibition on denials of insurance due to pre-existing conditions) or affordability assistance provisions (e.g., access to health insurance premium tax credits). […] The reach of the ACA’s whistleblower protections is quite broad. It applies to almost all public and private employees, and the protections afforded by the Act and the regulations are sweeping. As a result, as the countdown to the employer mandate continues, employers need to be aware of this aspect of the ACA and prepare accordingly.” (BakerHostetler)

3. A court extended protection to employees even when they cannot prove fraud against shareholders:

“[T]he employer maintained that the employee could not prevail under [Sarbanes-Oxley (SOX)] because, although she believed that there was possible mail and wire fraud, she could not demonstrate that there was any fraud against shareholders. The employer relied on the provision in SOX that protects employees from retaliation from blowing the whistle on acts involving mail fraud, wire fraud, bank fraud, securities fraud, SEC rules, or ‘any provision of Federal law relating to fraud against shareholders.’ The employer maintained that this last clause of the statute means that any act of wrongdoing has to constitute fraud against shareholders in order to come under the law. The Tenth Circuit disagreed.” (Sherman & Howard)

4. Employees of federal contractors and subcontractors are now covered by whistleblower rules:

“The National Defense Authorization Act for 2013 extended whistleblower protections to an employee of a ‘contractor, subcontractor, or grantee’ who makes a claim of gross mismanagement, gross waste, abuse of authority, a substantial and specific danger to public health or safety, or a violation of a law, rule, or regulation related to a federal contract.” (Proskauer)

5. The SEC recently determined that “original information” only includes claims received after July 21, 2010:

“The SEC has denied granting an award to another whistleblower in the second action of this year. The SEC determined that the whistleblower did not provide any ‘original information.’ Under Rule 21F-4(b)(1)(iv), information will be considered ‘original information’ only if it was provided to the Commission for the first time after July 21, 2010.” (Leonard, Street and Deinard)

The updates:

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