Several big names in the Senate have filed legislation that would clarify the protections for whistleblowers who first report their concerns to internal compliance teams and force the SEC to decide whistleblower awards more quickly.
Dubbed the “SEC Whistleblower Reform Act,” Sens. Elizabeth Warren, D-Mass., and Chuck Grassley, R-Iowa, filed the bill last week along with several other senators from both parties. The bipartisan support is a good sign that the legislation will become law sooner or later — although this is still a highly dysfunctional Congress, so place your bets on later.
Foremost, this bill would close the retaliation loophole created by the U.S. Supreme Court’s Digital Realty Trust decision from 2018. That ruling declared that whistleblower protections established by the Dodd-Frank Act only apply to those whistleblowers who report their concerns to the Securities and Exchange Commission — not to those who only report their concerns to internal managers or compliance officers.
This, of course, does companies and corporate compliance officers no favors, since it gives would-be whistleblowers incentive to report their misconduct allegations directly to the SEC rather than to you. So perhaps we should not be surprised that reports to the SEC Whistleblower Office have spiked in recent years.
Anyway, this legislation would clarify that, yes, even employees who only report their misconduct to internal managers or compliance officers also can claim anti-retaliation protections under Dodd-Frank. In a narrow sense this might raise the company’s overall risks of facing retaliation complaints; but in the broader sense compliance officers should welcome this move because it gives whistleblowers more assurance that they can speak up in a supportive environment — which is what you want, since their complaints will typically reach your office.
As sensible as closing the Digital Realty loophole is, we should also remember that a bipartisan Senate group proposed similar legislation in 2019. Things went nowhere then. They may well reach that same destination now.
Faster Decisions on Whistleblower Awards
The legislation also directs the SEC to make decisions about whether tipsters will receive whistleblower awards within one year of the deadline for whistleblowers to file a claim. The intent here is to give tipsters a better sense of whether they will or won’t see a cash payout, since sometimes the SEC has let whistleblower award applications linger for years.
That slow pace of award decisions has frustrated plenty of tipsters over the years, and they’ve found sympathetic ears in Warren, Grassley, and other whistleblower advocates in Congress. Yes, the SEC has done better in recent years at cutting through its backlog of cases, but I’m still not clear on how the agency can achieve the one-year timeframe this legislation would establish. It’s not like the agency is flush with cash or manpower to make this happen just because Congress says so.
Lastly, the bill would expressly declare that whistleblowers cannot waive their rights through pre-dispute arbitration agreements. I thought we already covered this with the SEC’s crackdown on pre-taliation agreements; apparently not. For the record, then: if your company is still trying to make employees surrender whistleblower rights as part of any legal agreement whatsoever, you need new lawyers and your head examined. Don’t do it.