Inside or Out? The Dodd-Frank Whistleblower Program's Anti-Retaliation Protections for Internal Reporting

Temple Law Review, Volume 86, Summer 2014

41 Pages Posted: 5 Sep 2013 Last revised: 28 Apr 2015

See all articles by Jennifer M. Pacella

Jennifer M. Pacella

Indiana University, Kelley School of Business

Date Written: October 1, 2013

Abstract

On July 17, 2013, the very first circuit court to have addressed the anti-retaliation protections available to whistleblowers under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) suddenly strayed from the string of judicial victories that had been mounting for employee-whistleblowers. In Asadi v. G.E. Energy (USA) LLC, the Fifth Circuit deviated from the holdings of several federal district courts that have interpreted the scope of Dodd-Frank’s anti-retaliation provisions to broadly protect whistleblowers. Ever since Dodd-Frank’s enactment in 2010, courts have struggled to interpret whether the statute’s anti-retaliation protections are available for internal whistleblowers, or those who internally report violations of the securities laws to their employers, rather than directly to the Securities and Exchange Commission (SEC). Confusion as to the scope of Dodd-Frank’s protections has arisen due to an inconsistency in the language of the statute with respect to how the term, “whistleblower,” is defined, which, on its face, appears to exclude internal whistleblowers. The various district courts to have addressed this issue prior to Asadi have each sided with the whistleblower, and have granted Chevron deference to a 2011 SEC rule that reconciles the statute’s inconsistency by clarifying that Dodd-Frank’s anti-retaliation protections are available to internal and external whistleblowers alike. The decision in Asadi stands in stark contrast to these decisions and the SEC’s interpretation of the statute. This Article will explore the Fifth Circuit’s decision in Asadi, as well as the district court opinions that have interpreted this issue, and will argue that Asadi sets a dangerous precedent. Not only will the Fifth Circuit’s decision likely pave the way for how other circuit courts will address this issue in the future, it also compromises the importance of internal compliance programs, which offer employees an outlet for reporting possible securities violations internally so that companies can respond to problems in a timely manner. Weakened protection against retaliation for internal whistleblowers will likely have the effect of creating disincentives for employees to report internally. This Article will examine the importance of internal compliance programs as a preventative measure against major securities violations and will consider the effect that strong anti-retaliation protections has on the promotion of internal reporting. As Dodd-Frank is still in its relatively early stages, it is probable that the Fifth Circuit’s surprising decision in Asadi will either give rise to a circuit split or prompt the Supreme Court to address this important issue.

Keywords: whistleblowers, anti-retaliation, Dodd-Frank, Asadi, internal whistleblowers, internal reporting, internal compliance programs

Suggested Citation

Pacella, Jennifer M., Inside or Out? The Dodd-Frank Whistleblower Program's Anti-Retaliation Protections for Internal Reporting (October 1, 2013). Temple Law Review, Volume 86, Summer 2014. Available at SSRN: https://ssrn.com/abstract=2320229 or http://dx.doi.org/10.2139/ssrn.2320229

Jennifer M. Pacella (Contact Author)

Indiana University, Kelley School of Business ( email )

1309 East Tenth Street
Bloomington, IN 47405
United States

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