Business Litigation Alert: "Court Ruling Allows Whistleblower to Sue Board Members"

A recent ruling in California federal court (here) broadens legal protections for whistleblowers and expands who can be held liable in retaliation cases.  In the case, Wadler v. Bio-Rad Labs., Inc., a federal judge ruled that Sarbanes Oxley and Dodd-Frank weren't intended to shield directors who retaliate against an employee.

This case surrounds Sanford Wadler who was formerly general counsel of Bio-Rad Laboratories.  Wadler claimed he was wrongfully terminated in retaliation for investigating and reporting possible violations of the Foreign Corrupt Practices Act in China.   Wadler then sued for retaliation and wrongful termination.

The judge ruled that the company's directors could be held personally liable for retaliating against whistleblowers under Dodd-Frank and that, by protecting board members, the scales would be unfairly tilted against whistleblowers.  The Judge also favored the SEC's position that an individual does not have to report alleged wrongdoing to the commission directly to qualify for whistleblower protections.

Why is this ruling so important?  

  1. This ruling supports the notion that a whistleblower does not have to report to the SEC to qualify for protections.  Wadler reported to high-level executives, and then faced wrongful termination.  According to the court, whistleblower protection begins the moment an employee reports wrongdoing – whether that is to a company official or the SEC.
  2. Under this ruling, directors can be held personally liable for any retaliation against a whistleblower.  So, in addition to seeking damages from the corporation, whistleblowers can now come after board members individually.
  3. This ruling highlights the importance of having policies and procedures in place surrounding whistleblowers.  Training and education should include board members. 

The Wadler case serves as a cautionary tale.  It should be a wake-up call for companies to review their rules and regulations governing internal reporting of possible wrongdoing.  It is also a reminder that C-suite executives and board members need to be informed and trained with respect to the company's whistleblowing policies and procedures.

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