On August 4th, the SEC delivered new guidance designed to answer once and for all one of the most important concerns of a potential whistleblower: “Where must I report to obtain protection from retaliation?”
When Dodd-Frank was enacted in 2010 it included provisions to encourage and reward employees who reported substantiated federal securities violations. In addition, the law provided some protection from retaliation by employers against those who reported the issue.
In 2011, the SEC attempted to clarify the qualifying reporting requirements by issuing legislative rules. There was never a question that those whistleblowers who reported to the SEC were qualified for protection if they met all of the reporting requirements.
However, since those interpretative rules were released in 2011, there has been an ongoing debate in the courts and amongst lawyers, HR executives and ethics and compliance professionals about whether or not a reporting employee was also protected from retaliation if they reported internally.
Those who argue that only employees who report to the SEC are covered by whistleblower protections point to just such a conclusion stated in the 5th Circuit ruling, Asadi vs. G.E. Energy. However, as Wall Street Journal reporter Ben DiPietro pointed out in his recent article, a case currently before the 2nd Circuit court (Berman vs. NEO@Ogilvy LLC and WPP Group USA Inc.) could result in the Supreme Court of the United States clarifying the issue once and for all.
SEC’s Guidance is Broad and Inclusive
If the issue does get to the Supreme Court, the SEC has made it very clear that it believes that the court’s interpretation of a whistleblower in Asadi was wrong. The SEC’s position is that any reporter is a whistleblower and deserves protection. In their new guidance, the SEC made its position clear:
“[O]ur interpretation best comports with our overall goals in implementing the whistleblower program. Specifically, by providing employment retaliation protections for individuals who report internally first to a supervisor, compliance official, or other person working for the company that has authority to investigate, discover, or terminate misconduct, our interpretive rule avoids a two-tiered structure of employment retaliation protection that might discourage some individuals from first reporting internally in appropriate circumstances and, thus, jeopardize the investor-protection and law-enforcement benefits that can result from internal reporting. Under our interpretation, an individual who reports internally and suffers employment retaliation will be no less protected than an individual who comes immediately to the Commission. Providing equivalent employment retaliation protection for both situations removes a potentially serious disincentive to internal reporting by employees in appropriate circumstances. A contrary interpretation would undermine the other incentives that were put in place through the Commission’s whistleblower rules in order to encourage internal reporting.”
Takeaways for E&C Professionals
Clearly the SEC wants to protect internal reporters from retaliation. For compliance internal reporting systems such as hotlines or web reporting, this should be seen as a show of support from the SEC. This is contrary to what many had feared—that the SEC or the Office of the Whistleblower would try and encourage reporting directly to the SEC. This would have robbed companies of the opportunity to first investigate the issue at hand and address the problem through training, a policy change or disciplinary action if warranted.
Now that we know the SEC supports internal reporting, the greatest danger for corporate compliance programs is a compliance culture that squanders the benefits of internal reporting. The most important thing to focus on is a transparent reporting culture where no retaliation happens. This will help employees feel safe reporting issues directly to the company. This gives the company a chance to investigate and address the issue and is more likely to prevent whistleblower reporting to regulators or the press.
To ensure that internal reporting is encouraged and supported in your organization:
- Ensure that your company culture and written policies, including the code of conduct, prohibit retaliation and have been communicated;
- Train your company’s first line of defense, supervisors, on how to accept, acknowledge and handle internal reports without retaliation;
- Provide and publicize an internal helpline and web reporting system for reporting issues anonymously or when reporting to a supervisor is not an option;
- Have a clear policy on conducting prompt and neutral investigations; and
- Reinforce the company’s desire to receive reports internally even if the news is negative.
If you introduce these elements into your compliance program and corporate culture, you demonstrate that the company’s focus is first and foremost on “doing the right thing” and addressing issues early—before they grow.
Let whistleblowers and their attorneys worry about the definition of whether and when a person becomes a whistleblower. Focus your compliance efforts on solving problems, not defending against reporters.