In Digital Realty Trust, Inc. v. Somers, a 9-0 opinion by Justice Ginsburg issued February 21, 2018, the Supreme Court held that the anti-retaliation provisions of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act do not extend to employees who have reported internally but extend only to employees who have reported suspected securities law violations to the Securities and Exchange Commission. 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. (My analysis of the Fifth Circuit opinion, entitled "When is a 'Whistleblower' Not Really a 'Whistleblower'?," is available here and of the Second Circuit opinion, entitled "Second Circuit Rules Dodd-Frank Protects Whistleblowers Who Report Internally," here.)
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.'" (Emphasis in original.) 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.'" (Citing S. Rep. No. 111-176, at 38.) Justice Ginsberg's reliance on legislative history sparked concurrences from Justice Thomas, joined by Justices Alito and Gorsuch, who joined the majority opinion only to the extent that it relied on statutory text and not legislative history, and by Justice Sotomayor, joined by Justice Breyer, who wrote to express disagreement with "the suggestion in my colleague's concurrence that a Senate Report is not an appropriate source for this Court to consider when interpreting a statute."
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.
From The Insider Blog: White Collar Defense & Securities Enforcement.