Unanswered Questions about Dodd-Frank Retaliation Claims


The universal refrain from leading commentators in the wake of a ruling in September by the U.S. Court of Appeals for the Second Circuit is that it will dramatically increase the number of whistleblower retaliation claims filed in federal court under Dodd-Frank. By holding in Berman v. Neo@Ogilvy that retaliation protection is triggered under Dodd-Frank solely through an internal complaint, the court undoubtedly expanded the scope of potential claims. The big unanswered question, however, is whether companies facing costly and protracted litigation may actually be better off, from a litigation standpoint, defending themselves against whistleblower retaliation claims in federal court under Dodd-Frank than responding to similar whistleblower retaliation claims brought under the Sarbanes-Oxley Act (SOX).

An analysis of the evolution of claims under SOX over the past 10 years and an examination of the statutory language of Dodd-Frank strongly suggests that demonstrating “protected activity” and causation—two necessary elements of a whistleblower retaliation claim—will be more difficult under Dodd-Frank.

Evolution of SOX Retaliation Claims

In 2002, Congress passed SOX nearly unanimously. Section 806 established a civil cause of action for employees alleging that their employers retaliated or discriminated against them as a result of their engaging in protected activity under the act. To establish a whistleblower retaliation claim under SOX (or Dodd-Frank), an individual must establish that he or she: 1) engaged in protected activity; 2) suffered an adverse action; and 3) suffered the adverse action because he or she engaged in the protected activity. Under SOX, employees need only establish that their protected activity was a contributing factor—as opposed to a motivating factor—to the alleged adverse employment action.

In the early years of the act, very few whistleblower claims proved successful. Under Platone v. FLYi (2006), the Department of Labor’s Administrative Review Board (ARB) required employees bringing SOX claims to establish that they engaged in protected activity which “definitively and specifically” related to one of the six categories of unlawful acts enumerated in SOX. Platone set what many commentators believed to be an excessively high standard. It remained the governing standard until 2011, when the ARB decided Sylvester v. Parexel Int’l.

Sylvester significantly expanded the scope of protected activity. Most notably, Sylvester rejected the “definitively and specifically” standard, opting instead for one which only requires an individual to demonstrate a reasonable belief that a SOX violation has occurred. Recent decisions, particularly out of the Second, Third and Sixth Circuits, have followed Sylvester’s holding. Thus, Sylvester and its progeny have largely opened the doors for plaintiffs in terms of what constitutes protected activity in SOX retaliation claims.

Evolution of Dodd-Frank Retaliation Claims

Signed into law on July 21, 2010, the Dodd-Frank Act greatly expanded whistleblower protections for employees both within and outside of the financial services industry. Section 922 provides significant monetary incentives for employees to make whistleblower claims. Compared with SOX, however, courts have yet to clearly articulate what constitutes protected activity and what the causation standard is.

At least one court has held that allegations sufficient to establish protected activity under SOX are not necessarily sufficient to support a claim under Dodd-Frank. In Newman v. Met. Life Ins. Co. (2013), a plaintiff brought an ERISA retaliation claim in Massachusetts federal court, alleging that she was retaliated against for being a whistleblower. She then sought to amend her complaint to add whistleblower claims under SOX and Dodd-Frank. The court allowed her request to add a SOX claim, but denied her request to add claims under Dodd-Frank.

The courts have yet to articulate the causation standard applicable to Dodd-Frank retaliation claims. However, as discussed below, there is reason to believe that under recent U.S. Supreme Court precedent, a “but-for” causation standard may (and should) apply.

The Supreme Court Decision on Title VII Retaliation Claims

The U.S. Supreme Court’s 2013 decision in Univ. of Texas Southwestern Medical Center v. Nassar suggests that the tide may be turning to more stringent standards in retaliation cases, including Dodd-Frank retaliation cases. In Nassar, the court was tasked with articulating the causation standard for Title VII retaliation claims. In so doing, it broke its long record of setting expansive standards in the context of Title VII claims by requiring strict “but-for” causation and rejecting the more liberal “motivating factor” standard applicable to Title VII discrimination claims. As a result, plaintiffs bringing Title VII retaliation claims are required to establish “that the unlawful retaliation would not have occurred in the absence of the alleged wrongful action or actions of the employer.”

Significantly, in reaching its decision, the court acknowledged serious concerns about the proliferation of retaliation claims. Writing for a 5-4 majority, Justice Anthony Kennedy emphasized that “[t]he proper interpretation and implementation of [the Title VII anti-retaliation provision] and its causation standard have central importance to the fair and responsible allocation of resources in the judicial and litigation systems.” He characterized the issue as “of particular significance because claims of retaliation are being made with ever-increasing frequency” and warned that “lessening the causation standard could also contribute to the filing of frivolous claims, which would siphon resources from efforts by employer, administrative agencies, and courts to combat workplace harassment.” Kennedy further noted the distinct possibility that an employee facing demotion or termination “might be tempted to make an unfounded charge of . . . discrimination” in order to set the stage for a retaliation claim to prevent the “undesired change in employment circumstance.”

Kennedy is correct that retaliation claims are on the rise. According to the Equal Employment Opportunity Commission’s website, last year an astonishing 43 percent of all charges filed with the EEOC included a claim of retaliation, making it the most often filed type of EEOC charge as compared with all forms of discrimination charges. In comparison, retaliation claims in 2004 constituted only 29 percent of charges filed with the EEOC, lagging behind the filing rates of charges for race and sex discrimination.

Post-Berman Predictions

Contrary to popular opinion, whistleblowers bringing Dodd-Frank retaliation claims in federal court may very well face an uphill battle post-Berman. Berman unequivocally and exponentially expands the universe of potential claims (from those who actually complain to the SEC to those who make internal complaints). However, the circuits remain split on this issue, with the Fifth Circuit holding in Asadi v. GE Energy (2013) that only whistleblower complaints to the SEC warrant retaliation protection under Dodd-Frank. A California federal case decided two days before BermanDavies v. Broadcom—dismissed plaintiff’s Dodd-Frank claim because she had not reported the allegation to the SEC. This underscored the increasing divide among the federal courts.

In recently filed pleadings, Neo@Ogilvy stated that it will seek to appeal Berman, on the grounds that the circuit split created by the decision presents a substantial question warranting Supreme Court review. If the court agrees to hear the appeal, Nassar suggests that it may adopt Asadi’s more narrow view. Nassar teaches that the court is wary of the ever-increasing number of retaliation claims and the attendant flood of litigation which might ensue in the federal courts. Indeed, federal courts in recent years have repeatedly emphasized a reluctance to wade into employment decision-making, often noting that they do not wish to sit as “super-personnel departments.”

Moreover, even if the Supreme Court upheld Berman and adopted the broader scope of Dodd-Frank, plaintiffs in future litigation may find establishing two of the three elements of their case more difficult. As for “protected activity,” it is far from certain that the courts will routinely apply the lenient standard which has evolved under SOX. And on causation, Dodd-Frank contains the same “because of” statutory language as that of Title VII—the very language which the Nassar court closely analyzed and underscored in support of its application of a but-for causation standard in Title VII retaliation claims. This suggests that a more stringent “but-for” causation standard may be applied to Dodd-Frank as well.

Further, certain key differences between SOX and Dodd-Frank may also influence how the federal courts address Dodd-Frank’s protected activity and causation standards for retaliation claims. SOX imposes a threshold procedural hurdle for whistleblowers which Dodd-Frank does not. It requires plaintiffs to exhaust administrative remedies before bringing claims to court, whereas Dodd-Frank plaintiffs may proceed directly to federal court. SOX also imposes a significantly shorter statute of limitations—180 days for SOX, versus six years for Dodd-Frank. In short, because Dodd-Frank plaintiffs have more time to file their claims and may do so directly in federal court, courts may be inclined to apply more stringent protected activity and causation standards to Dodd-Frank retaliation claims than SOX claims, which have already passed through an administrative review process entitled to Chevron deference.

While the ultimate impact of Berman remains unclear, there is reason to believe that Berman may not result in a flood of Dodd-Frank retaliation claims. To the contrary, post-Berman courts may very well impose a more stringent standard in Dodd-Frank retaliation cases as compared to SOX cases, giving employers a far better chance of success in defending against these claims.

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