Monday, February 26, 2018

Supreme Court Clarifies Narrow Definition of “Whistleblower” Under Dodd-Frank Act

On Wednesday, Feb. 21, 2018, the Supreme Court issued a ruling that significantly narrows the category of employees who may be protected whistleblowers under the Dodd-Frank Act.1 In a case entitled Digital Realty Trust, Inc. v. Somers, the Court held that Dodd-Frank’s prohibition on employer retaliation against whistleblowers only covers individuals who made reports of suspected violations of the securities laws to the Securities Exchange Commission (SEC).

Paul Somers was an employee of Digital Realty Trust, a San-Francisco based realty firm, whose employment was terminated by Digital Realty Trust in 2014, after he allegedly reported concerns of possible securities law violations by the company to senior management internally. Importantly, Somers did not bring his concerns to the SEC’s attention at any time. Following his termination, Somers brought suit against his former employer, alleging his termination constituted illegal retaliation for making the reports and thus violated the whistleblower protections of the Dodd-Frank Act. Both the district and appeals courts agreed with Somers, initially saying he was entitled to whistleblower protections even though he didn't disclose his allegations to the SEC.

The Supreme Court, however, disagreed and reversed the lower court’s decision. Writing for the Court, Justice Ruth Bader Ginsburg observed that, “Dodd-Frank’s text and purpose leave no doubt” about who the term “whistleblower” extends to. “The definition section of the statute supplies an unequivocal answer: A ‘whistleblower’ is ‘any individual who provides ... information relating to a violation of the securities laws to the Commission.’” The Court reasoned that its understanding of the definition was supported by the law’s initial purpose, namely “to motivate people who know of securities law violations to tell the SEC,” Ginsburg wrote, quoting from a Senate report.

The high court’s ruling feels like a “win” for employers—and at first blush, it is. Presumably, a more narrow definition of “whistleblower” under the Dodd-Frank Act will mean that fewer cases lacking reasonable veracity will be brought against companies. However, the ruling may also present employers with more expensive obstacles in the future. Now employees who suspect violations of securities law could be more motivated to go straight to the SEC with concerns, rather than using internal reporting structures because they don’t have the same protections when they report internally. With that being said, companies should continue strengthening internal compliance methods and encourage employees to use internal reporting structures without fear of employment retaliation.

Justice Sotomayor filed a concurring opinion, joined by Justice Breyer. Justice Thomas concurred in part and in the judgment, joined by Justices Alito and Gorsuch. Justice Sotomayor, with Justice Breyer joining, wrote that Senate Reports “are a particularly reliable source to which we can look to ensure our fidelity to Congress’ intended meaning.” Justice Thomas, joined by Justice Alito and Justice Gorsuch, disagreed on that point, stating that the Court should not look at legislative history and should rely on the text of the law itself.
1 The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) was enacted in 2010 as a financial reform package in response to the financial crisis of 2008.  The Dodd-Frank Act strengthened existing whistleblower protections under the Sarbanes-Oxley Act, including establishing monetary incentives for employees to report suspected violations of securities laws.

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