There have been many significant legislative enactments in the last couple of years that are critical to employers (i.e., the ADA Amendments Act, the new health care law). The most recent enactment is the Dodd-Frank Wall Street Reform and Consumer Protection Act (commonly referred to as the Dodd-Frank Act or Dodd-Frank). We blogged about Dodd-Frank when it was signed by the President. One section of the legislation that cannot be overlooked is the new whistleblower provision.

This provision provides financial incentives for whistleblowers who come forward with information about securities law violations. The financial incentives consist of a financial bounty that a whistleblower may receive if the information provided leads to an enforcement action in which a monetary sanction is obtained of at least one million dollars. Notably, in order to collect the bounty the employee must provide “original information”, which is information not already known to the SEC. Additionally, the provision provides remedies for whistleblowers who believe that they have been subjected to retaliation.

Significantly, under Dodd-Frank a whistleblower can file an action directly in Federal Court. Additionally, the statute of limitations is lengthy, either six years from the violation or three years after the facts become known or should have become known (but no more than 10 years in total).

Will the Dodd-Frank whistleblower provision lead to an increase in whistleblower complaints? Apparently, the SEC thinks so. According to one SEC official, the SEC is expecting a tremendous response to the law. By creating financial incentives for an employee to bypass an employer’s internal compliance process, that official may be right.

Employers should consider taking several steps in light of this legislation. First, employers should review their internal reporting policies and structures to make sure that employees can report problems. Employers should also think about ways to communicate to employees to encourage employees to raise any issues to the company. Indeed, one concern about Dodd-Frank is that employees will forego bringing their concerns to management and instead report the information to the SEC. To avoid this scenario, employers should publicize their corporate compliance and reporting mechanisms so that employees will raise concerns internally before going to the SEC. Employers may also want to consider providing their own incentives for employees to utilize internal reporting processes. Additionally, employers may want to promote that conducting business in an ethical manner is an integral part of the corporate culture. It goes without saying that the best way to avoid a litigation is to never have one in the first place.