By Christopher Robertson and Paul E. Freehling

The U.S. district courts are currently split on the question of whether the anti-retaliation provisions of the federal Dodd-Frank Act (“DFA”) apply to employees who disclose their employer’s alleged securities violations to company officials but do not report the claimed violations to the SEC.  Just in May 2014, for example, federal courts in New York and Nebraska held that a communication with the Commission is not required, but a Florida federal court ruled otherwise.

Sarbanes-Oxley Act of 2002 (“SOX”) and DFA 

SOX prohibits retaliation against employees who communicate alleged wrongdoing to the SEC or to anyone “working for the employer who has the authority to investigate, discover, or terminate misconduct.”  The section in DFA called “Protection of Whistleblowers” permits a civil action for an adverse employment action injuring a “whistleblower” employee who (i) provided certain information to the SEC, or (ii) assisted the SEC in a proceeding relating to the information, or (iii) made disclosures of the information “that are required or protected under” SOX.

While there is no dispute regarding whether a report to the SEC is a prerequisite to a “whistleblower” claim under SOX, the same is not true with regard to DFA.  The confusion arises because the definition of “whistleblower” in the DFA is limited to an “individual who provides . . . information relating to a violation of the securities laws to the Commission.”  Thus, unless the employee passes the initial test of being a “whistleblower” as defined in the statute, those courts reading the statute as unambiguous have concluded that the employee does not fit within the gatekeeping definition and cannot bring a claim.  On the other hand, certain courts have concluded that the statute is not as clear, and, applying a Chevron analysis, have deemed it appropriate to defer to the SEC’s interpretation of the statute, contained in SEC Rule 21-F-2.  Rule 21-F-2 expresses the Commission’s view that DFA “whistleblower” claims are not precluded just because the only reporting was internal.  The rule states that “the statutory anti-retaliation protections apply to . . . [among other people] individuals who report [prescribed wrongdoing] to persons and governmental authorities other than” the SEC.

Recent Cases

Is an employee entitled to the “Protection of Whistleblowers” under the DFA if the employee does not meet the definitional standard which requires reporting to the SEC?  The courts have provided inconsistent answers to that question, and the issue would appear to be headed to the Supreme Court if this debate and split of authority continues.

1.  Yang v. Navigators Group, Inc., Case No. 13-civ-2073 (S.D.N.Y. May 8, 2014).  The motion of Yang, Navigator’s Group Chief Risk Officer, for leave to file a second amended complaint was allowed over the insurance company’s objection that filing would be futile.  Yang alleged that during her five-month tenure with Navigators, she repeatedly told the CFO, as well as other high-level company personnel, that Navigators’ SEC filings underreported its risks and failed to disclose that it was out of compliance regarding risk reporting and monitoring.  She did not communicate with the SEC concerning the supposed wrongdoing.  As she was preparing a written report for the Board of Directors, she was discharged for (in the court’s words) “not fitting into the company’s culture.”

The court held that DFA “does not clearly and unambiguously limit whistleblower protection to individuals who report violations to the SEC.”  The “anti-retaliation provision simultaneously incorporates SOX-protected reporting to supervisors,” and “Rule 21F-2 is a reasonable reading of the statute” that resolves this statutory ambiguity.  Federal court decisions in 2012 and 2013 in states such as Colorado, Connecticut, New York and Tennessee, and the recent ruling in Bussing v. Cor Clearing, LLC, Case No. 8:12-CV-38 (D. Neb. May 21, 2014), reached the same result.

2.  Asadi v. G.E. Energy (USA), L.L.C., 720 F.3d 620 (5th Cir. 2013).   The Fifth Circuit’s holding in Asadi takes the opposite view.  The court held that DFA’s definition of “whistleblower” precludes a claim under that statute by an employee who alleges retaliation for reporting wrongdoing to the employer but not to the SEC.  Last month, relying on Asadi, the court in Englehart v. Career Education Corp., Case No. 8:14-cv-444-T-33 (M.D. Fla., May 12, 2014), dismissed with prejudice the DFA claim of an employee who was terminated after voicing concerns internally, but not to the SEC, with regard to alleged misrepresentations in her employer’s financial statements.  A 2013 California federal district court decision is to the same effect.  See Banko v. Apple, Inc., 3:13-cv-02977 RS (N.D. Cal. Sept. 27, 2013).  Asadi has also been cited with approval by courts in New York and Colorado.  These courts have concluded that the statute is not ambiguous, and that in the context of implementing the SEC bounty program, limiting these protections to those that have reported to the SEC is consistent with the statutory scheme.  These courts have also noted that such a reading does not leave an aggrieved whistleblower without a remedy, but simply limits the remedy to a claim under SOX, as opposed to effectively rendering SOX moot by subsuming it into the DFA.


The conflict in federal court rulings with regard to the viability of a “whistleblower” claim under DFA in the absence of reporting to the SEC continues to rage on, with courts in just the last few months reaching conflicting opinions.  At least one case we are watching closely, Liu v. Siemens A.G., Case No. 13-4385, is presently before the Second Circuit, and given the ongoing split of authority, the issue appears headed to the Supreme Court for a determination whether the statute is or is not ambiguous.