Following the 2008 financial crisis, more and more countries have begun to embrace whistleblower protections as a tool to change corporate cultures. Such provisions may give whistleblowers the protections they need to raise their voices, and draw attention to undesired and sometimes even illegal activities, in situations when they would otherwise remain silent. After all, many people will hesitate to point out questionable conduct if they know they might face retaliation.
In the United States, Congress authorized the SEC to go further than other whistleblower provisions by authorizing a bounty program—allowing the SEC to reward whistleblowers for particularly valuable tips. This has proved successful: in 2015 alone, the program paid more than thirty million dollars in awards to whistleblowers.
While this bounty program has generated headlines, Dodd-Frank also strengthened existing whistleblower protections in other ways. In particular, it exempted whistleblowers under other statutes from arbitration by adding anti-arbitration provisions to those statutory protections. These anti-arbitration provisions matter a great deal because different forums often have different procedures, publicity and outcomes.
Yet a number of controversies have sprung up around how courts should interpret Dodd-Frank’s new, inelegantly drafted whistleblower section. Curiously, while Dodd-Frank added anti-arbitration provisions to preexisting whistleblower statutes, it did not include a dedicated, standalone anti-arbitration provision for the new cause of action for whistleblowers seeking protection under Dodd-Frank. This seeming oversight has meant that some courts have required whistleblowers bringing a Dodd-Frank cause of action to bring their anti-retaliation claims in arbitration instead of court.
Shuffling whistleblowers off to arbitration may frustrate Dodd-Frank’s goals. Financial services institutions may not face the same reputational risk and pressure to address concerns if whistleblower claims will be resolved in arbitration. Unlike the public court docket, news organizations cannot pull documents from private arbitration. This lack of publicity may also reduce the likelihood of public enforcement—regulators have been known to act on newspaper headlines and to pick up on public court proceedings. To the extent that the public also seeks to scrutinize the conduct of financial services organizations, arbitration limits the flow of information to non-parties. To be sure, widespread distrust of industry-controlled arbitration forums, may reduce the willingness of whistleblowers to come forward in the first place. If the odds appear lower in private arbitration, many whistleblowers with bills to pay might decide to leave the whistle in the drawer.
We argue that exempting Dodd-Frank’s whistleblowers from arbitration will do substantial good. It will increase the likelihood that whistleblowers will come forward and also increase the likelihood that the public might hear the whistle’s blast. Publicly protecting whistleblowers by allowing access to court proceedings may also put new and novel issues before the courts—giving them opportunities to establish clear precedent and guidance on complex financial issues.
Congressional action would provide the surest and clearest way to make clear that Dodd-Frank’s whistleblowers have a right to a day in court. Yet Congressional action is not the only solution to the issue—courts could embrace a pragmatic interpretative fix. At least one court has already found that that the anti-arbitration provision Dodd-Frank added to the Sarbanes-Oxley whistleblower provision also applies to Dodd-Frank’s own cause of action.[1] Despite this, most courts follow the Third Circuit’s decision in Khazin v. TD Ameritrade, which found that the omission of a dedicated antiarbitration provision means that employers may compel whistleblowers to arbitrate their Dodd-Frank claims.[2]
We argue that Dodd-Frank’s unclear language and cross-references to Sarbanes-Oxley also supports a better interpretation that aligns with the need to protect whistleblowers. The same language has also been used to find support for recognizing the anti-retaliation provisions protects whistleblowers that report misconduct internally. In Berman v. Neo@Ogilvy LLC,[3] the Second Circuit struggled to interpret the impact of Dodd-Frank’s ambiguous language referring to Sarbanes-Oxley’s provisions. Legislative history provided no useful guide, the Second Circuit characterized the provision as akin to “a kind of legal Lohengrin; … no one seems to know whence it came.”[4] Given the uncertainty, the Second Circuit deferred to the SEC to find that Dodd-Frank’s antiretaliation provision also applies to internal reporters. We argue that courts may extend the same rationale to find that Sarbanes-Oxley’s new anti-arbitration provision also protects Dodd-Frank’s whistleblowers.
ENDNOTES
[1] See Wiggins v. ING U.S., Inc., No. 3:14-CV-1089 JCH, 2015 WL 3771646 (D. Conn. June 17, 2015) on reconsideration, No. 3:14-CV-01089 (JCH), 2015 WL 8779559 (D. Conn. Dec. 15, 2015) (finding that Dodd-Frank claims also arise under the Sarbanes-Oxley anti-arbitration provision).
[2] Khazin v. TD Ameritrade Holding Corporation, 773 F.3d 488, 492 (3d Circ. 2014) (holding that the omission of a dedicated antiarbitration provision means that Congress did not intend to exempt the Dodd-Frank Claim from arbitration).
[3] 801 F.3d 145 (2d Cir. 2015)
[4] Id. at 153. For readers that are not opera buffs, Richard Wagner’s Lohengrin features the fairy tale of knight that arrives on a boat drawn by a swan. In exchange for rescuing the fair maiden, he extracts a promise—she must never ask his name or from whence he came.
The preceding post comes to us from Nizan Geslevich Packin, Assistant Professor City University of New York, Baruch College – Zicklin School of Business (@NizanGP), and Benjamin P. Edwards, Assistant Professor at Barry University Dwayne O. Andreas School of Law (@BenPEdwards). The post is based on their recent paper, “Regulating Culture: Improving Corporate Governance with Anti-Arbitration Provisions for Whistleblowers,” which is forthcoming in the William & Mary Law Review Online.