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Consult an experienced attorney to develop effective internal complaint process

Last time, we began looking at recent court decision by the 9th Circuit Court of Appeals dealing with an issue that is currently the subject of a split among federal courts: whether employees who report suspected violations of the Dodd-Frank Act are covered by that law’s whistleblower protections. As we noted, the court broadened the law’s whistleblower protections to include internal whistle-blowing.

The Dodd-Frank Act defines the term whistleblower as an employee who reports securities violations to the government, and notes three categories of protected activities. One of the protected activities is disclosing violations of the Sarbanes-Oxley Act, which provides whistleblower protections to both external and internal disclosures. The 9th Circuit Court of Appeals, therefore, ruled that the Dodd-Frank protects not just external whistleblowers, those who report directly to the government, but also internal whistleblowers, those who report a violation through their employer’s internal complaint process. 

Other courts have come to the conclusion, though, that the Dodd-Frank Act does not protect internal whistleblowers, since the language of the Dodd-Frank Act including within the definition of whistleblower disclosures under the Sarbanes-Oxley Act would otherwise be superfluous. Critics of this way of reading the statute say that it is an ideological view aimed at encouraging whistleblowers, but which risks opening the doors to whistleblowers filing frivolous and parasitic lawsuits.

The current split in the courts on the issue of internal whistle-blowing is an important one to be aware of for businesses looking to implement effective regulatory compliance programs. Every business should establish an effective process for handling internal complaints to ensure they are able to effective limit liabilities. Working with an experienced attorney can help ensure a business has proper guidance in doing this, and effective advocacy when legal issues arise. 

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