Whistleblowing Pitfalls

Two weeks ago, the U.S. District Court for the Southern District of New York issued an opinion which identifies an important difference between filing an anti-retaliatory discharge or whistleblower claim under the Sarbanes-Oxley Act and one under the Dodd-Frank Act. While Sarbanes-Oxley’s anti-retaliatory provision prohibits pre-dispute arbitration clauses, it does require the exhaustion of administrative remedies before a civil suit may be filed. And although Dodd-Frank’s anti-retaliatory discharge rule does not require administrative exhaustion, it permits mandatory arbitration.

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In Murray v. UBS, plaintiff Trevor Murray alleged that defendant UBS violated the anti-retaliation provision of the Dodd-Frank Act when it fired him after, and as a result of, his making certain disclosures protected by Section 806 of the Sarbanes-Oxley Act of 2002. UBS moved to stay the lawsuit and compel arbitration citing Murray’s employment agreement and his Form U4 Uniform Application for Securities Industry Registration or Transfer, both of which contained arbitration clauses.

Murray countered that his claims were not subject to arbitration because they arose under the Sarbanes-Oxley Act, which prohibits pre-dispute arbitration agreements.

The Court sided with UBS. It noted that the complaint makes no reference to Sarbanes-Oxley and instead references only Dodd-Frank’s anti-retaliation provision. Even if the claim was made under Sarbanes-Oxley, it would fail because Murray had yet to meet Sarbanes-Oxley’s administrative exhaustion requirement. Although he had submitted a claim to the Occupational Safety and Health Administration, as required by Sarbanes-Oxley, the administrative process was not yet complete.

The Court further noted that while the whistleblower protection provisions of the Dodd-Frank Act prohibit pre-dispute arbitration clauses, the anti-retaliation provisions do not. And Murray brought his claims under the anti-retaliation provision, not the whistleblower protection provisions.

Additional practice pointers concerning claims filed under Sarbanes-Oxley or Dodd-Frank have been noted by Sutherland and King & Spaulding. Both discuss whether and when a plaintiff can demand a jury trial for claims made under one or the other Act. View Sutherland’s memo here and King & Spaulding’s here. And a memo by DLA Piper discusses whistleblower requirements of the Dodd-Frank Act in light of other recent court decisions.