An essential aspect of the Dodd-Frank Act is the whistleblower provision, which encourages employees to report potential fraud or wrongdoing in their companies internally or to the Securities and Exchange Commission. But in order to go out on a limb and report suspicious activities, employees would want to ensure that they are protected from retaliation.

Whether they are, though, appears to be a sticky matter. There have been conflicting rulings coming from circuit and district courts that are in direct opposition. For example, in one case involving a whistleblower from General Electric, the 5th Circuit Court ruled that employees had to report to the SEC directly in order to be protected from retaliation.

On the other hand, at least six U.S. district-court judges have ruled otherwise. Most recently, a U.S. district court judge in Massachusetts ruled on a case involving Richard Ellington, who reported suspected securities violations to the SEC after he was fired from New England Investment and Retirement Group. The judge rejected the argument that Ellington was ineligible because he reported the violations after he was fired.

The reason for the differing interpretations stems from some ambiguous wording in the act itself. In one place, a whistleblower is defined as someone who reports information to the SEC, but elsewhere, the document outlines a number of ways that employees can report suspected violations and earn protection.

This seems to create a bit of a conundrum for workers who witness suspicious activity in their companies. Many would likely wish to report such suspicions internally at first (and most companies would likely prefer this method as an initial step), but if they only receive protection if they go directly to the SEC, they might hesitate to take matters that far. Look for legislation to clear up this loophole, or perhaps a ruling from the Supreme Court to clarify matters once and for all.