On December 12, 2024, the U.S. Department of Transportation’s National Highway Traffic Safety Administration (“NHTSA”) announced the publication of a final rule formalizing its whistleblower program. The Final Rule was officially published in the Federal Register on December 17, fulfilling an obligation established by Congress in 2015 under the Motor Vehicle Safety Whistleblower Act (“MVSWA”).
The program provides for awards to current and former industry employees and contractors who report “original information” that leads to a successful resolution in which the federal government collects sanctions from automotive companies exceeding $1 million. Whistleblower awards can range from 10% to 30% of the collected sanctions. See 49 U.S.C. § 30172.
Whistleblower awards are limited to recoveries for certain types of monetary sanctions. Notably, the relevant action must be brought by the “Secretary [of the Department of Transportation], NHTSA, or the U.S. Attorney General” under 49 U.S.C. Chapter 301, the part of the Motor Vehicle Safety Act (“MVSA”) containing defect and noncompliance reporting and recall provisions. 89 Fed. Reg. 101,952, 101,955 (Dec. 17, 2024) (to be codified at 49 C.F.R. § 513). Recoveries for other types of civil or criminal violations are excluded, “even if [they] involve vehicle safety issues and/or are based on facts common to an action taken under 49 U.S.C. Chapter 301.” 89 Fed. Reg. at 101,956. Actions brought by “other agencies” or “by the U.S. Department of Justice under any statute other [than] 49 U.S.C. Chapter 301” are, therefore, not covered. Although Chapter 301’s requirements are substantial, this limitation is likely to have significant implications. Companies that are involved in parallel-track or sequential enforcement actions will not face a potential NHTSA whistleblower award based on other types of alleged violations and enforcement actions. For example, any recoveries by the DOJ based on allegations of conspiracy, fraud, fraudulent statements or related violations, even if they “are based on” facts in common with a Chapter 301 violation, will not provide the basis for a MVSWA whistleblower award.
The Final Rule’s publication follows NHTSA’s earlier publication of a Notice of Proposed Rulemaking (“NPRM”) in April 2023. NHTSA noted in the Final Rule that it “adopted the proposed rule without significant changes,” despite numerous comments on the NPRM.
A number of the Final Rule’s features merit consideration by automotive companies. Of particular interest are (1) the Final Rule’s definition of “independent knowledge;” (2) NHTSA’s decision not to expand the internal reporting prerequisite; (3) NHTSA’s decision not to exclude directors, officers, and compliance function employees from whistleblower eligibility; (4) NHTSA’s decision not to render persons convicted of a related crime by a foreign tribunal ineligible as whistleblowers; and (5) NHTSA’s decision not to exclude information obtained by unlawful conduct subject to civil liability.
1. Definition of Independent Knowledge.
Under the Final Rule, only “original information” qualifies for a whistleblower award. The MVSWA defines “original information” as information that is “derived from the independent knowledge or analysis of an individual,” “not known to the Secretary from any other source,” and “not exclusively derived from an allegation made in” certain public proceedings. 49 U.S.C. § 30172(a)(3). The Final Rule defines “independent knowledge or analysis,” but does not limit it to first-hand knowledge. NHTSA explained that, in its view, “[t]hose without ‘first-hand’ knowledge, such as an employee of a used-car dealership, may still have the requisite expertise to conduct their own personal analysis and identify a potential safety violation,” or “might get regular complaints about a particular issue or conduct repairs related to a particular issue on a regular basis.” 89 Fed. Reg. at 101,957.
2. Scope of Internal Reporting Requirement.
In response to the NPRM, commenters proposed that internal reporting “should always be required for a potential whistleblower to be eligible for an award.” 89 Fed. Reg. at 101,963. One commenter also proposed a waiting period for a manufacturer to act on an internal report. NHTSA rejected these proposals, instead finalizing the NPRM’s initial formulation of the requirement, which requires “potential whistleblowers to use internal reporting requirements only when they are in place and have mechanisms to protect employees from retaliation.” The agency reasoned that this requirement accords with the statutory language used in the MVSWA. See 49 U.S.C. § 30172(c)(2)(E). As to the proposed waiting period, NHTSA found it unnecessary, concluding that “[t]he fact that NHTSA is [made] aware of a potential safety issue [by a whistleblower] does not impact a manufacturer’s ability to expeditiously address it.”
3. Directors, Officers, Audit and Compliance Employees Not Excluded.
The Final Rule does not exclude from the scope of “original information” “information obtained solely because the potential whistleblower is an officer, director, trustee or partner of an entity or a person whose principal duties involve compliance or internal audit responsibilities.” 89 Fed. Reg. at 101,958. According to the Final Rule, the agency “believes officers, directors, trustees, partners, and persons whose principal duties involve compliance or internal audit responsibilities all have the potential to learn important information concerning vehicle safety” and that “[e]xcluding such individuals could prevent such valuable safety information from reaching the Agency.”
In contrast, the Securities and Exchange Commission’s (“SEC”) whistleblower program limits the availability of awards for those involved in internal assessments, audits, or compliance, including third parties retained to assist with an entity’s self-evaluation. See 17 C.F.R. § 240.21F-4(b)(4). This reflects the SEC’s concern that rewarding potential whistleblowers who obtained their knowledge from internal audit or compliance functions could create incentives to “circumvent or undermine the proper operation of the entity’s internal processes for responding to violations of law.” 75 Fed. Reg. 70,488, 70,493 (Nov. 17, 2010).
The program implemented by the Commodity Futures Trading Commission takes a similar approach, see 17 C.F.R. § 165.2(g), and likewise reflects a concern that the program “should not create incentives for persons involved in such roles, as well as other similarly positioned persons who learn of wrongdoing at a company, to circumvent or undermine the proper operation of an entity’s internal processes for investigating and responding to violations of law.” 76 Fed. Reg. 53,172, 53,175 (Aug. 25, 2011).
4. Persons Convicted of Crimes in the United States Ineligible.
The Final Rule, similar to the NPRM, makes ineligible for awards whistleblowers “convicted of a criminal violation related to the covered action for which the whistleblower otherwise could receive an award.” This exclusion, however, applies only to convictions by American tribunals. 89 Fed. Reg. at 101,962. The NPRM sought comments regarding the extension of this exclusion to convictions by foreign tribunals. One commenter proposed that it should be expanded. However, NHTSA rejected that proposal, concluding that, because “Congress did not expressly state the scope of the exclusion . . . the most logical reading . . . is that it is referring to the United States.” The agency further reasoned that “expanding the exclusion to those criminal convictions decided by tribunals outside of the United States would potentially discourage whistleblowers by creating legal uncertainty.”
5. No Exclusion for Unlawful Conduct Subject to Civil Liability.
NHTSA similarly rejected one commenter’s proposal that the exclusion of information obtained through unlawful means should be expanded to “include civil unlawful conduct[, in order] to account for prosecutorial discretion.” 89 Fed. Reg. at 101,962. Relying on the statute’s reference to a “criminal violation,” the agency concluded that the exclusion is appropriately limited. Additionally, the agency reasoned that limiting the exclusion would “avoid incentivizing companies from suing potential whistleblowers.”
Whether the Final Rule is reconsidered or enforced by NHTSA under a new administration or is challenged by parties in federal court litigation remains to be seen. Nevertheless, companies should carefully consider how the Final Rule may impact their compliance efforts and related activities. Companies should maintain and encourage the use of internal reporting mechanisms to help mitigate the potential impact of the Final Rule.
If you have any questions concerning the material discussed in this client alert, please contact members of our Product Safety practice.
Back
