Whistleblower Fix Lurches Forward Again

More whistleblower protection news from Washington: the House has passed a bill to undo the damage of the Digital Realty Trust decision from the Supreme Court last year, which said that employees must first report their allegations to the SEC if they want to claim whistleblower protections under the Dodd-Frank Act.

On Tuesday the House passed H.R. 2515, the Whistleblower Protection Reform Act of 2019, on a nearly unanimous vote. The bill amends the Dodd-Frank Act to clarify that whistleblowers who report misconduct to their employers and not to the SEC also have protections against retaliation under the law. 

The bill still needs to win passage in the Senate, plus signature from President Trump, to become law — so while this is a big step forward, the compliance community still has several more big steps ahead before we can declare this problem solved. 

I’m not aware of any companion bill filed in the Senate yet, and of course the Senate is where many good legislative ideas go to die. Still, this bill has bipartisan support, and is part of a larger collection of bills with bipartisan support. So HR 2515 could be one of those bills that gets slipped into a larger must-pass bill, like a budget appropriation or something. Wait and see.

Refresher course: As we’ve said many times before on this blog, the Digital Realty Trust ruling is correct under the letter of the law, but does compliance officers and Corporate America no favors.

whistleblowerFirst, other laws and regulations still require corporate whistleblower hotlines (government contracting rules, for example), so the duties of fostering a speak-up culture don’t go away. Yet the Digital Realty Trust ruling sends employees the message that if they want to protect themselves when raising concerns about corporate misconduct, they should ignore the corporate compliance program and go directly to the SEC with their concerns.

Second, once the SEC does hear those concerns, the company loses its chance to win cooperation credit for voluntary self-disclosure of misconduct — because the whistleblower has already told the SEC, and cooperation credit is awarded for disclosure of new information the SEC doesn’t know. Lovely.

Meanwhile, the SEC Office of the Whistleblower now gets thousands of tips every year. It received more than 5,200 in fiscal 2018, including a notable increase in tips after the Digital Realty Trust ruling, “which may have been attributable, in part, to the ruling.”

So the sooner Congress acts, the better. 

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