Employees need to do more than just whistle at work: Supreme Court requires whistleblowers to report to SEC to be protected by Dodd-Frank

On February 21, 2018, the Supreme Court of the United States narrowed the universe of whistleblowers who are protected by the powerful anti-retaliation provisions within the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). In Digital Realty Trust, Inc. v. Somers, the court unanimously held that whistleblowers are not protected from retaliation under Dodd-Frank unless they report information to the Securities & Exchange Commission (SEC). The decision may have been a victory for one employer, but it is not a slam dunk for employers or employees going forward.

Background
Congress passed Dodd-Frank in 2010 as a response to the 2008 economic crisis. Dodd-Frank includes a stronger anti-whistleblower retaliation provision that what is available under the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley). To file a whistleblower retaliation claim under Sarbanes-Oxley, an individual must file a complaint with the Department of Labor within 180 days of the alleged retaliation and exhaust any administrative remedies before bringing a claim in court. However, an individual has six years to file a whistleblower retaliation claim under Dodd-Frank, and there is no requirement to file with an administrative agency. The Dodd-Frank provision also provides for more lucrative damages than a claim under Sarbanes-Oxley. Dodd-Frank further incentivized whistleblowing by including a whistleblower bounty provision: if a whistleblower provides information to the SEC that results in a successful governmental enforcement action, the whistleblower is entitled to 10-30% of any monetary sanction.

The decision
Paul Somer filed a Dodd-Frank whistleblower retaliation suit, alleging he was terminated for reporting violations of securities laws to his then-employer Digital Realty Trust. However, he only reported these violations internally to senior management and not the SEC. Digital Realty moved to dismiss, arguing that Somer was not a whistleblower under Dodd-Frank. The statute defines a whistleblower as someone who provides pertinent information “to the [Securities & Exchange] Commission” in a manner established by the SEC. Somer argued that the statute was ambiguous.

The Supreme Court unanimously sided with Digital Realty and held that whistleblowers are only protected by Dodd-Frank’s anti-retaliation provision if they report information to the SEC. The statute was unambiguous and therefore the court did not accord any deference to an SEC guidance that would have found Somer to be a protected whistleblower under Dodd-Frank.

What does this decision mean for employers and employees?
This decision was a victory for Digital Realty, but it is not all good news for employers. Employers will not be exposed to retaliation liability under Dodd-Frank for adverse actions taken against a whistleblower who has not gone to the SEC, but a whistleblower who only made an internal complaint still may have a retaliation claim under Sarbanes-Oxley. Importantly, this decision further incentivizes a whistleblowing employee to go to the SEC.

With retaliation claims on the rise, it’s important to know the basics of retaliation claims and how best to avoid them. When it comes to retaliation, an ounce of prevention is worth far more than a pound of cure: written policies, supervisor trainings, and a clear internal reporting mechanism may prevent costly anti-retaliation litigation.

This decision also creates an additional concern for a potential whistleblower. Employees with the belief that their employer is violating securities laws may be fearful of retribution for making an internal complaint. Any employee in this position should strongly consider providing information to the SEC before making an internal complaint to ensure the stronger protections afforded by Dodd-Frank.
Whether you are an employer or employee, if you have any questions about this decision, retaliation, whistleblower protections, Dodd-Frank, or Sarbanes-Oxley, please contact one of Conn Kavanaugh’s employment lawyers for assistance.

DANIEL R. FISHMAN

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