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Financial Institutions Should Tread Cautiously — Whistleblower Protections Remain Plentiful and Strong

Financial Institutions Law Update James I. Kaplan, Judith A. Williams-Killackey

In what may be seen as a glimmer of hope to employers when it comes to whistleblowers, on June 4, 2014, in Zillges v. Kenney Bank & Trust, the Eastern District of Wisconsin denied a discharged employee’s attempt to amend his court complaint and add a claim for a violation of the Dodd-Frank Wall Street Freedom and Consumer Protection Act (Dodd-Frank). According to the Court, the employee’s internal complaints that his employer had violated banking laws did not provide him with whistleblower protection under Dodd-Frank because those complaints did not involve alleged violations of securities laws. Thus, the Court held that, at least with respect to Dodd-Frank protections, the bank employer was free to terminate the employee even if the termination decision was in retaliation for his internal complaints.

However, despite the favorable result for the bank, the Zillges decision most certainly does not mean that financial institutions have free reign to terminate employees who raise concerns about the institution’s practices or conduct. To the contrary, financial institutions are well advised to investigate all whistleblower claims carefully and ensure that appropriate steps are taken to avoid retaliation against whistleblowers. Numerous laws protect whistleblowers from retaliation and, in any event, financial institutions would do well to cultivate an environment in which employees can feel free to raise compliance-related concerns internally, and not feel they must instead complain first or only to regulators.

It remains to be seen if the Zillges decision will stand up on appeal or if its rationale will be adopted by other courts. But whether or not it is overturned, depending upon the facts of a particular situation, Dodd-Frank may still present an avenue of relief for financial institution whistleblowers. More importantly, while the employee in the Zillges case, for whatever reason, sought to add a claim to his complaint only under Dodd-Frank, there are a number of other statutes—including the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), the False Claims Act, Sarbanes-Oxley, and applicable state statutes—under which employees may pursue whistleblower retaliation claims against financial institutions for banking law violations.

In order to avoid such retaliation claims, financial institutions should consider implementing practices to minimize the chances of a claim being filed and, if a claim is filed, to improve the financial institution’s ability to establish that any complaints made by the employee were not the basis for any negative employment actions. These practices include:

  • Establishing procedures to ensure compliance with the law. Every financial institution should routinely audit functions and practices to ensure that laws are not being violated.
  • Establishing and publishing to all employees a procedure for raising concerns internally about possible violations of the corporate code of conduct or the laws and regulations that apply to financial institutions, and assuring employees that their concerns will be investigated fully and fairly. As is necessary in policies dealing with sexual and other forms of harassment, this procedure needs to provide employees with several options for reporting such concerns to ensure that there are avenues available with which they are comfortable.
  • Developing and implementing training programs for senior managers (and preferably all managers) on the fundamental aspects of whistleblower laws and regulations, and how to recognize and handle incipient whistleblower situations proactively and properly.
  • Alerting all human resources personnel and senior corporate managers to the reality that whistleblower laws provide discontented employees (and their lawyers) with substantial incentives to file claims under those laws.
  • Documenting performance issues as they occur. Not doing so may result in an implication that such problems did not exist prior to the filing of the employee’s whistleblower complaint and that any later documented issues of unsatisfactory performance by the whistleblower were fabricated or exaggerated in retaliation for the whistleblower’s complaint.
  • Promptly investigating any complaint that the financial institution is not complying with the law. As part of the investigation, employees should be reminded of the institution’s policy against retaliation against individuals who make complaints. The investigation should be carefully planned, and the financial institution also should document all aspects of the investigation, including the outcome.
  • Carefully reviewing terminations or other significant negative employment actions involving employees who have reported concerns about the financial institution’s operations, to ensure those employment actions do not violate any of the numerous whistleblower statutes that might provide protection to the employee.
  • Working with internal and, as needed, external counsel to plan and execute the strategy for investigating the employee’s underlying concerns and to review, before the fact, any future discipline of the whistleblower, keeping in mind the possibility of attorney-client privilege and other legal matters.

Once again, despite Zillges, care must be taken when dealing with employees who have complained. Various causes of action are available, should a terminated employee in such circumstances desire to pursue them.

For more information on the Zillges decision and whistleblower actions in general, contact Judi Williams-Killackey at Judi.Williams@quarles.com / (414) 277-5439 or Jim Kaplan at james.kaplan@quarles.com / (312) 715-5028, or your Quarles & Brady attorney.