Whistleblowers Granted Additional Protections Under Dodd-Frank Act

Some employers go beyond the law. developing their own programs that provide extra protection for whistleblowers.

Posted by Joe Gerard in Ethics, Ethics & Compliance, Whistleblower on August 11th, 2010

Employers must be prepared to follow new legislation that has been enacted to increase protections for whistleblowers. The recent passing of the Dodd-Frank Act continues to follow the trend towards putting an end to whistleblower retaliation- as well as rewarding whistleblowers for bringing forward evidence of unethical or criminal acts taking place within an organization. Whistleblowers can become victims of retaliation whether it comes from managers or fellow employees.

Employers have a responsibility to their employees to protect them from retaliation, which has resulted in a number of companies going above and beyond the law to develop their own programs to protect whistleblowers. In a previous post, “Vicki Sweeney of KPMG Presents Best Practices in Preventing and Monitoring Workplace Retaliation,” I discussed the retaliation monitoring program in place at KPMG, to further assist in protecting whistleblowers at KPMG. This post will focus on the expansion of the whistleblower protections under the Sarbanes-Oxley Act and financial incentives for whistleblowers, which have both been included in the Dodd-Frank financial reform legislation.

Enhanced Protections Under the Dodd-Frank Act

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The Dodd-Frank Act includes a major expansion of the whistleblower protections outlined in the Sarbanes-Oxley (SOX) and Consumer Protection Acts. As outlined in Section 922 of the Act, here are some of the protections employers will need to draw attention to include:

  • Prohibiting Retaliation: Employers cannot demote, discharge, suspend, threaten, harass or discriminate against whistleblowers in any way for disclosing information protected under SOX and the Securities Exchange Act. If an employee believes they have been retaliated against, they can bring their case to court. Wrongful dismissal claims must be filed within six years of the violation occurring or three years after the date when the claim is known. In any case, action in a wrongful termination suit must be filed within 10 years from the date the violation occurred.
  • Bringing  a Complaint Forward: Originally, whistleblowers only had 90 days to bring a claim forward. Now, that time span has been doubled, giving whistleblowers 180 days from the point of initial discovery, to make a claim.
  • Expansion of “Covered” Groups: Employees from publicly traded companies are now granted whistleblower protections under the Dodd-Frank Act.
  • Establishment of the SEC Whistleblower Office: Under section 924 of the act, the SEC has until April 2011 to launch a whistleblower office. The whistleblower office will administer and enforce the amended provisions of the Securities Exchange Act to comply with the Dodd-Frank Bill. The Bill also states that the SEC whistleblower office must report annually to the “Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives on its activities, whistleblower complaints, and the response of the Commission to such complaints.”

Whistleblower Rewards

Being a whistleblower isn’t easy. When an employee makes the decision to come forward with information regarding workplace misconduct, it usually results in retaliation or job loss. For many, their reputation takes the largest hit, making it difficult to stay in their current position within the company, or seek alternative employment. Whistleblowers seem to pay a pretty large price for doing the right thing – which has been taken into consideration with the Dodd-Frank Act.

Included in the Dodd-Frank Act are amendments to the Securities Exchange Act, providing increased financial incentives for whistleblowers. As outlined in Section 922 of the Act, here is an overview of the financial incentives in place for whistleblowers:

  • Eligibility to be Granted an Award: Awards can be granted to one or more whistleblowers who volunteer original information to the SEC, which leads to the successful enforcement of the covered action.
  • Award Amounts: Whistleblowers can receive anywhere from 10-30% of the total amount collected from the monetary penalties- exceeding $1 million, imposed on the guilty party.
  • Determining the Amount of the Award: The amount awarded to the whistleblower(s) will vary on a case-by-case basis and is determined by the SEC. The SEC will take a number of factors into consideration including: significance of the information presented by the whistleblower, the degree of assistance provided by a whistleblower and any legal representative on their behalf and the interest of the SEC in fighting back against securities violations by encouraging whistleblowers to bring information forward.

I’m not too sure how effective financial incentives will be in encouraging employees to blow the whistle on someone in their organization. However, the award amounts mentioned above are a significant increase compared to the sums previously awarded to whistleblowers. According to the CFO Magazine article “Paid to Whistle,”:

“Before, the SEC could reward only whistleblowers involved in insider-trading cases. And the commission has been stingy: during its 20-year existence, the SEC’s whistle-blower program has paid out only $159,537 to five claimants.”‘

Joe Gerard
Joe Gerard

CEO, i-Sight

Spend my days showing off the i-Sight investigative case management software and finding ways to help clients improve their investigations. Usually working with corporate security, HR & employee relations, compliance and legal teams.

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