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Dodd-Frank's Anti-Retaliation Protections Apply Only to Whistleblowers Who Report to the SEC

Posted  February 23, 2018

In Digital Realty Trust, Inc. v. Somers, a 9-0 opinion by Justice Ginsburg, the Supreme Court held that the anti-retaliation provisions of the 2010 Dodd-Frank Act do not extend to employees who have reported internally but extend only to employees who have reported suspected securities law violations to the SEC. The Supreme Court’s decision reversed the Ninth Circuit, and resolved a longtime circuit split. The Fifth Circuit has held that employees must provide information to the SEC while the Ninth and Second Circuits held that reporting internally is enough for employees to qualify for Dodd-Frank Act’s anti-retaliation protections.

The Supreme Court reasoned that the Dodd-Frank Act’s definition of “whistleblower” “supplies an unequivocal answer” of the term’s meaning:  “A ‘whistleblower’ is ‘any individual who provides . . . information relating to a violation of the securities laws to the Commission.'” The meaning is further corroborated, the Supreme Court held, by legislative history indicating that the “‘core objective’ of Dodd-Frank’s robust whistleblower program . . . [was] ‘to motivate people who know of securities law violations to tell the SEC.'”

Employees who report violations only internally may still be protected from retaliation by the Sarbanes-Oxley Act of 2002, which prohibits certain companies from retaliating against an employee who “provid[es] information . . . or otherwise assist[s] in an investigation regarding any conduct which the employee reasonably believes constitutes a violation” of certain delineated fraud statutes, any SEC rule or regulation, or “any provision of Federal law relating to fraud against shareholders.” The Dodd-Frank Act, however, provides employees with a greater level of protection. Sarbanes-Oxley contains an administrative exhaustion requirement while Dodd-Frank permits whistleblowers to sue directly in federal district court, and Sarbanes-Oxley limits a whistleblower’s recovery to backpay with interest while Dodd-Frank permits an award of two-times backpay with interest.

Although the Supreme Court’s decision in Digital Realty has curtailed the full extent of the protection many employees believed they enjoyed under Dodd-Frank, the Supreme Court’s decision was unsurprising as the language of the statute itself appears clear. To the extent Congress believes broader protection is desirable, it has the means to amend the statute to make clear that employees who report violations or suspected violations only to their employers are protected by Dodd-Frank’s anti-retaliation safeguards. Until then, the decision in Digital Realty likely will encourage employees to go straight to the SEC with their suspicions rather than give their employers the benefit of investigating the complaint and possibly correcting any irregularities before the government comes knocking. Forbes

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Tagged in: Court Decision, Reporting to Government, Retaliation, SEC Whistleblower Reward Program,