By Kimberly Atkins
The Daily Record Newswire
BOSTON, MA — According to many employment and litigation defense attorneys, the new whistleblower and bounty provisions of the Dodd-Frank Wall Street Reform Act are turning employees into potential adversaries.
They charge that the provisions give employees an incentive to report possible securities violations to the government first and ask questions as to whether corruption is actually taking place later.
Further, the new rules tie employers’ hands by giving anti-retaliation protection only to employees who go to the government with their concerns.
“It’s really a double whammy,” said Daryl M. Shapiro, a partner in the Washington office of Pillsbury Winthrop Shaw Pittman.
‘Incredible incentive for employees’
The rules adopted by the Securities and Exchange Commission in May boosted bounty awards to employees who report credible information about company corruption or other securities violations.
Under the rules, individuals who voluntarily provide the SEC with original information that leads to the successful enforcement of a federal court or administrative action in which the agency obtains monetary sanctions totaling more than $1 million will receive bounties of up to 30 percent of the penalty, and the awards are mandatory. Prior to the Act, whistleblower awards were discretionary and capped at 10 percent.
The new rules also substantially broaden retaliation protections for employees who report suspected corporate wrongdoing to federal authorities, even in cases where no malfeasance is ultimately found.
In fact, “employees are not protected under the whistleblower provision unless they go to the government,” Shapiro noted. “Employees who try to resolve issues internally — by going to a manager or someone else in the best position to react — unfortunately, [if] the employer retaliates, that employee is not protected under the law.”
SEC officials say the rules are necessary to encourage employees to help prevent the kind of corporate fraud that has exacerbated the nation’s financial crisis.
But business groups and corporate attorneys complain that the rules extend far beyond financial firms and take away a vital tool to help companies diagnose and fix problems — internal employee cooperation.
What’s worse, they say, is the bounty awards encourage some workers to wait until things get really bad and therefore more lucrative before they blow the whistle at all.
“Some employees — and I stress this is in a minority of cases — will let the issue percolate into a massive problem. They are going to wait until it hits the million-dollar amount to get a bigger windfall,” Shapiro said.
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