Whistleblowers who report violations of securities laws internally but not to federal authorities are protected from retaliation, the U.S. Court of Appeals for the Second Circuit ruled Sept. 10, a decision that likely puts the case on a track to the U.S. Supreme Court.
The appellate court’s 2-1 decision potentially opens the door for more corporate whistleblowers who have been harassed, demoted, passed up for promotion, terminated, or in other ways punished for calling out wrongdoing to sue their employers over alleged retaliation.
The ruling revives a lawsuit filed by Daniel Berman, a former finance director at Neo@Ogilvy, the digital media arm of WPP, a UK-based global advertising and public relations firm. Mr. Berman sued Neo@Ogilvy and its parent alleging he was fired for voicing concerns internally over accounting irregularities to his superiors, including delayed payments, improperly recorded revenue, and other fraud. Mr. Berman did not take his objections to the Securities and Exchange Commission (SEC) before he was fired.
The Second Circuit’s decision to revive the Berman case stands at odds with a 2013 ruling by the 5th Circuit Court of Appeals in New Orleans, which found that whistleblowers are protected by the anti-retaliation clauses of the 2010 Dodd-Frank Act and Sarbanes-Oxley Act only if they take their complaints to the SEC.
Cases in which two circuit courts oppose each other often end up in Supreme Court, where corporate interests are almost certain to push it, driven by fear retaliation claims against companies will escalate.
Mr. Berman claims he was fired in April 2013 after uncovering the alleged fraud at his firm. He sued Neo@Ogilvy in January alleging the company violated federal laws shielding whistleblowers from employer retaliation.
Federal Judge Gregory Woods in New York tossed Mr. Berman’s complaint, contending that the “plain language” of the Dodd-Frank Act affords whistleblowers protection only if they first notify the SEC.
Both the SEC and the 2nd Circuit agreed with Mr. Berman’s argument. According to Reuters, 2nd Circuit Judge Jon Newman “said some whistleblowers might fear a ‘substantial risk’ of retaliation by going to the SEC first, while others, including auditors and lawyers, cannot report wrongdoing to the SEC at all before telling their employers.”
Judge Newman added that it was “doubtful” that Congress intended such a narrow interpretation of the law.