How Will Whistleblower Protections Fare Under Trump?

February 8, 2017

Katz Banks Kumin partner Alexis Ronickher published an article in Law360 on February 8, 2017 entitled, “Whistleblower Protections: What To Expect In The Trump Era.” In the article, Ms. Ronickher analyzes how whistleblower protections and reward programs in a variety of areas might fare under the new Trump administration. While whistleblowers enjoyed expanded legal protections during the Obama administration, a few early indicators, such as campaign promises to repeal the Dodd-Frank Act, suggest some protections could contract under President Trump. “Trump’s statements against Dodd-Frank, both as a candidate and as president, have focused on what he sees as the over-regulation of the financial sector. Dodd-Frank, however, also created two whistleblower reward programs and enhanced existing whistleblower protections for employees of publicly traded companies and those in finance. Trump has been silent as to how the rollback of the law may affect whistleblowers, but there are strong indications that these provisions may survive the assault.”

While the new administration has not indicated interest in legislatively rolling back whistleblower protections in either the Sarbanes-Oxley (SOX) or False Claims (FCA) Acts, Ms. Ronickher notes that new leadership may play an inadvertent role in weakening protections both of these laws’ and Dodd-Frank’s protections. “Even if Dodd-Frank’s whistleblower provisions are not repealed, the two whistleblower reward programs could still be weakened.  Whistleblower rewards may decrease if, under their new leadership, either the U.S. Securities and Exchange Commission or the U.S. Commodities Futures Trading Commission pursue fewer enforcement actions or accept lower settlements.” She added, “Lower penalties in particular could undercut the whistleblower rewards programs because whistleblowers are only eligible for an award if monetary sanctions exceed $1 million.”

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Whistleblower Protections: What To Expect In The Trump Era

During the Obama years, whistleblower protection and whistleblower reward programs expanded substantially. We have entered an era of Republican control over both Congress and the presidency. Many have questioned what effect this shift may have on whistleblowers. While there may be a retrenchment in the scope of whistleblower protections and a decrease in the efficacy of whistleblower rewards programs, it is unlikely that either will disappear given the strong support of key Republicans, as well as the availability of state-level whistleblower protections and whistleblower rewards programs.

Dodd-Frank Whistleblower Provisions

On Feb. 3, 2017, President Donald Trump issued an executive order directing the secretary of treasury to review federal regulation of the financial services sector. Many view the order as the beginning of his much-promised rollback of the Dodd-Frank Act, the law passed in 2010 to address what many viewed as the inadequate regulation of the financial sector that led to the Great Recession.

Trump’s statements against Dodd-Frank, both as a candidate and as president, have focused on what he sees as the over-regulation of the financial sector. Dodd-Frank, however, also created two whistleblower reward programs and enhanced existing whistleblower protections for employees of publicly traded companies and those in finance. Trump has been silent as to how the rollback of the law may affect whistleblowers, but there are strong indications that these provisions may survive the assault.

Currently the primary Republican-approved blueprint for dismantling Dodd-Frank is the Financial CHOICE Act, sponsored by Rep. Jeb Hensarling, R-Texas. The focus of the CHOICE Act is to reverse the regulatory scheme that Dodd-Frank established. It does nothing to change the two whistleblowing programs or the enhanced whistleblower protections.

Trump has not publicly endorsed the CHOICE Act or a similar approach. There are persuasive reasons to believe that the eventual repeal will resemble some version of it and that version will not repeal the whistleblower provisions. There are reports that Hensarling, the CHOICE Act’s sponsor, supports the Dodd-Frank whistleblower provisions. Any legislation dismantling Dodd-Frank would have to pass through this committee, ensuring that he has significant influence over the content of that legislation. Hensarling also has close ties to Trump, as an early supporter of the president during his campaign and as an adviser to the president’s transition team. This relationship is likely to allow Hensarling to further influence the shape of any repeal.  Additionally, whistleblowers have strong support in the Senate from Sen. Charles Grassley, R-Iowa, the chairman of the Senate Judiciary Committee, who is also a strong supporter of Trump.

Even if Dodd-Frank’s whistleblower provisions are not repealed, the two whistleblower reward programs could still be weakened.  Whistleblower rewards may decrease if, under their new leadership, either the U.S. Securities and Exchange Commission or the U.S. Commodities Futures Trading Commission pursue fewer enforcement actions or accept lower settlements. Lower penalties in particular could undercut the whistleblower rewards programs because whistleblowers are only eligible for an award if monetary sanctions exceed $1 million.

Sarbanes-Oxley Whistleblower Protections

In 2002, the Sarbanes-Oxley Act created retaliation protections for employees of publicly traded companies who blew the whistle on fraud and securities violations. There is no indication that either Trump or Congress are interested in rolling back these well-established protections legislatively. Nevertheless, SOX whistleblower protections are likely to see a retrenchment under the Trump administration because of his conservative judicial and administrative appointments.

Under the Obama administration, the U.S. Department of Labor’s interpretation of SOX whistleblower protections expanded significantly. Prior to 2008, most courts and the DOL had limited protections to employees of publicly traded companies who reported securities fraud. During the Obama years, the DOL expanded the scope of protected activity to include employees who report violations of wire, mail and banking fraud, as well as securities rules and regulations. Among other notable expansions, it eased the pleading requirements for the administrative complaint a whistleblower must file to pursue a claim, and it rejected the requirement that a whistleblower “definitively and specifically” relate the misconduct to one or more category of fraud or securities violations. Federal courts eventually followed suit.

It is likely that the inverse process will happen under Andrew Puzder, the secretary of labor nominee who is staunchly against government regulation in the workplace. As Trump has the opportunity to fill vacancies on the federal bench with conservative jurists, it is also likely that less employee-friendly decisions become more common.

The False Claims Act

The False Claims Act authorizes private citizens who observe fraud against the government to file a “qui tam” claim on behalf of the government and share in any recovery against the wrongdoer. The FCA has become the government’s most powerful weapon to fight fraud against the government, enabling the recovery of over $50 billion dollars through qui tam lawsuits brought by whistleblowers. In 2009, under the Democrat-controlled Congress and President Barack Obama, the law was strengthened to expand liability and the government’s ability to investigate. The FCA also provides whistleblowers with protection if their employer retaliates against them for opposing government fraud.

There has been no discussion of weakening the FCA — neither the qui tam nor the anti-retaliation provisions — and the law has a strong supporter in Grassley, making any legislative attack unlikely. The success of a qui tam lawsuit, however, is correlated to whether the U.S. Department of Justice chooses to participate in a lawsuit, also known as “intervening.”  Approximately 90 percent of qui tam actions in which the government intervenes result in recovery, while cases in which the government declines to intervene have failed to generate similar rates of recovery. If the DOJ decreases its pursuit of fraud cases under the FCA, it could result in a drop in successful qui tam lawsuits. Early indications, however, are that Sen. Jeff Sessions, R-Ala., Trump’s nominee for attorney general, is committed to having the DOJ vigorously enforce the FCA. During one of his confirmation hearings, Sessions pledged his support for the FCA and lauded the effectiveness of FCA prosecutions.

State Law Protections

Even if there was a reduction in federal whistleblower protections, the majority of states protect whistleblowers from wrongful discharge. Most of these states protect employees who oppose violations of federal as well as state law. Additionally, many states have their own versions of the FCA, which allow whistleblowers to report fraud against state governments and share in any recovery. Since neither Trump nor Congress control state law, there is no reason to believe that these protections and rewards programs will weaken during this new Trump era.

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