Latest Developments in Whistleblower Law: What You Need to Know

Whistleblower law plays a critical role in maintaining corporate accountability and protecting individuals who expose illegal or unethical behavior within organizations. Recent developments in whistleblower law have reshaped how these cases are handled, offering enhanced protections, stricter penalties for retaliation, and broader opportunities for whistleblowers to report wrongdoing. For businesses and individuals in sectors such as finance, healthcare, and technology, understanding these changes is vital. Below, we break down the latest trends and legal updates to help you stay informed.

Key Legislative Updates in Whistleblower Protections

1. Department of Justice (DOJ) Whistleblower Pilot Program

In August 2024, the DOJ launched a three-year pilot program offering financial incentives to whistleblowers who provide information on corporate misconduct, including fraud and bribery. Whistleblowers may receive up to 30% of assets forfeited due to their reports. This initiative aims to bridge gaps left by existing programs from agencies like the SEC and IRS. Eric Rosen recently wrote a blog post highly critical of this program.

2. State-Level Reforms

Several states have enacted laws to strengthen whistleblower protections:

  • California: Amendments to the California Labor Code now extend protections to employees reporting violations of local, state, and federal laws.

  • New York: The state's whistleblower laws have been expanded to include independent contractors, broadening the scope of protected individuals.

3. European Union Directive Implementation

The EU Whistleblower Protection Directive requires companies operating within EU member states to establish internal reporting channels and protect whistleblowers from retaliation. Multinational corporations, including those based in the U.S., must comply with these regulations when operating in Europe.

Landmark Court Decisions Regarding Whistleblowers

1. Murray v. UBS Securities, LLC

In February 2024, the U.S. Supreme Court ruled that whistleblowers do not need to prove an employer's retaliatory intent to be protected under the Sarbanes-Oxley Act. Instead, they must demonstrate that their whistleblowing was a contributing factor in any adverse employment action.

2. D.C. Circuit Affirms SEC's Denial of Whistleblower Award to Attorney Tipster

In September 2024, the D.C. Circuit upheld the SEC's decision to deny “John Doe” a whistleblower award to an in-house attorney who reported client misconduct. The court emphasized that disclosures violating attorney-client privilege are not eligible for whistleblower awards, underscoring the importance of adhering to professional ethical standards.

Doe, an in-house attorney, provided legal services to his company in connection with a securities offering. The offering documents represented that the invested funds would be used for a specified project. While working on the offering, Doe discovered that the invested funds were likely being misappropriated by an individual. Doe filed a tip with the SEC, stating that an individual was misappropriating the company's investors' funds for personal benefit. The tip stated that the SEC should "protect investors" by ensuring the project was completed or helping investors receive their money back. The SEC ultimately obtained judgments against this individual, another individual, and the company. Doe then applied for a whistleblower award, primarily relying on two Florida Rules of Professional Conduct that are variants of the Model Rules cited in the SEC's adopting release of Rule 21F-4. The SEC denied him a whistleblower award, and the DC Circuit affirmed the SEC’s decision.

3. Protection for Charity Trustee Whistleblowers

A landmark judgment by the UK Employment Appeal Tribunal granted charity trustees greater legal protection as whistleblowers. The case involved a trustee expelled after reporting governance failings, with the tribunal recognizing that trustees should be protected under human rights law, citing freedom of expression rights.

Emerging Trends in Whistleblower Law

1. Focus on Cybersecurity Violations

With the increase in cyberattacks, whistleblowers have been routinely exposing lapses in cybersecurity practices. Regulatory bodies like the SEC and DOJ have prioritized enforcement in this area, signaling enhanced protection for cybersecurity whistleblowers.

2. Protections for Independent Contractors and Gig Workers

As the workforce evolves towards incorporating more and more independent contractors, whistleblower laws have also evolved and are adapting to protect non-traditional workers, including independent contractors and gig workers, who often have insights into organizational misconduct.

3. Use of Artificial Intelligence to Detect Retaliation

Employers are utilizing AI to monitor workplace interactions, which can also identify patterns of retaliation against whistleblowers, aiding regulators in investigations.

4. Whistleblowers in Environmental, Social, and Governance (ESG) Enforcement

Whistleblowers are crucial in exposing violations related to ESG compliance, such as environmental misconduct or unethical labor practices, prompting regulatory scrutiny and public accountability.

Practical Advice for Whistleblowers

If you're considering reporting misconduct:

  • Document Evidence: Keep detailed records of the wrongdoing, including emails, memos, and other relevant documents.

  • Consult Legal Counsel: It is critical to engage an attorney experienced in whistleblower law to understand your rights and the appropriate steps.

  • Follow Reporting Procedures: Adhere to internal reporting mechanisms or report directly to regulatory agencies, as appropriate. There can be tricky statute of limitations issues and internal reporting requirements that must be filed. In addition, many whistleblower laws have short statute of limitations, such as less than six months. Act Fast!

  • Be Aware of Retaliation Protections: Familiarize yourself with laws protecting against retaliation and report any adverse actions promptly.

Guidance for Employers

To ensure compliance and foster a culture of transparency:

  • Establish Reporting Mechanisms: Create secure, anonymous channels for employees to report concerns without fear of retaliation.

  • Provide Training: Educate employees about ethical practices, whistleblower rights, and anti-retaliation policies.

  • Conduct Regular Audits: Regularly review and assess compliance programs to identify and address potential issues proactively.

  • Respond Appropriately to Reports: Investigate all complaints thoroughly and take corrective action when necessary to prevent future misconduct. It is also critical to engage with counsel, as whistleblowers may stay with a company after blowing the whistle. This can make it very difficult for internal stakeholders to do their jobs properly. Guidance must be clear as to what measures can and cannot be taken against such employees.

Conclusion

Recent developments in whistleblower law have strengthened protections for individuals reporting misconduct and imposed greater responsibilities on organizations to maintain ethical practices. Staying informed about these changes is crucial for both whistleblowers and employers to navigate the evolving legal landscape effectively.

This article is for informational purposes only and does not constitute legal advice. Dynamis, however, handles many whistleblower cases. Please contact Eric Rosen for additional details on how Dynamis can help.

Previous
Previous

Is It Time to Re-Assess Whether the Term “Investment Contract” in the Securities Act and Securities Exchange Act Is Unconstitutionally Vague?

Next
Next

Media Interviews by a Defendant: Bad Idea (in most cases)