How the SEC’s definition of whistleblower will hold up in court
Since the 2010 passage of the Dodd-Frank Act, the definition of “whistleblower” has been a subject of contention among courts, businesses and would-be whistleblowers. Its supposed ambiguity stems in part from the fact that the SEC offers two potentially contradictory definitions in two separate provisions.
In the first, the bounty provision, the SEC defines a whistleblower as “any individual who provides … information relating to a violation of the securities laws to the Commission, in a manner established, by rule or regulation, by the Commission.”
In the second, however, the anti-retaliation provision, a whistleblower is defined as one who makes “disclosures that are required or protected under” the Sarbanes-Oxley Act of 2002 or “any other law, rule or regulation subject to the jurisdiction of” the SEC.
These distinctions are important because they determine who is eligible for monetary awards for whistleblowing and who falls under the anti-retaliation clause of the act, which states that an employer may not retaliate on a whistleblower in any way, thus protecting the one reporting an alleged violation.
In 2013, the Fifth Circuit Court of Appeals decided in Asadi v. G.E. Energy that the language is unambiguous and requires that an alleged violation be reported to the SEC in order for the person reporting it to be considered a whistleblower.
However, on August 4, the SEC issued an interpretive rule further clarifying the language used in the Dodd-Frank Act. The interpretation states that though the SEC understands that “if read in isolation [the rule] could be construed to require that an individual must report to the commission before he or she will qualify … that construction is not consistent with [the rule] and would undermine our overall goals in implementing the whistleblower program.”
The existence of an interpretive rule inherently contradicts the Fifth Circuit’s decision because if the language really were unambiguous, like the court said it was, there would be no need for such a rule. In issuing its interpretation, the courts may have to defer to that instead of the ruling made by the Fifth Circuit.
The question now remains: is the language ambiguous or not? The SEC would have courts defer to its interpretive rule, which protects any would-be whistleblower that discloses alleged violations of the Dodd-Frank Act, regardless of whether the individual reported it to the SEC.
In any future appeal to an appellate court, deference to the SEC interpretation can help protect those seeking to do the right thing under the law in the long run.