SEC Rule Protects Employees from Retaliation

The Securities and Exchange Commission (SEC) has implemented an interpretive rule that protects employees who report whistle-blower complaints directly to their employer from retaliation. While the rule first applied to employee complaints that went directly through the SEC, the protections have been amended. Experts recommend evaluating your clients’ company’s Employment Practices Liability Programs to help to ensure fair and compliant operations.

While the SEC welcomes all employee concerns, they seek to provide incentive for employees to speak directly to their employer in appropriate situations. The SEC stated that not promoting this type of reporting “would undermine the other incentives that were put in place through the Commission’s whistleblower rules in order to encourage internal reporting.”

The SEC’s statement indicated “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.”

The SEC also stresses that under the Dodd-Frank whistleblower and anti-retaliation provisions, employers can expect to be taken to court to defend any alleged retaliation resulting from internal complaints. Further, the SEC seeks to prevent employers from dismissing whistleblowing complaints.

To prepare for the influx of claims from the new protections, general counsel should be prepared. Steven Pearlman, co-head of Proskauer Rose’s Whistleblowing and Retaliation, stressed that counsel should update compliance policies, procedures, and training.

Moving forward, it is a realistic possibility that the Supreme Court will need to intervene if the appeals courts disagree with the given verdicts. Pearlman said “There is a possibility that the 2nd Circuit could issue a decision in the near future in which is strays from the 5^th Circuit’s decision ruling that Dodd-Frank protects internal complaints.”

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