A Whistle Upon Deaf Ears: Changes to Dodd-Frank Whistleblower Protections
On Wednesday, February 21st, the U.S. Supreme Court unanimously ruled that individuals who report allegations of corporate wrongdoing must do so to the Securities and Exchange Commission, not just to their own companies, in order to qualify for protections offered under the Dodd-Frank Act.
The case in question, Digital Realty Trust v. Somers, involved Paul Somers, a former employee of Digital Realty Trust, a San Francisco-based real estate investment company. Somers detected foul-play in the company and reported mismanagement of funds and contracts to senior management. He was subsequently fired in 2014. Somers proceeded to sue, claiming that his termination was retaliation that violated the Dodd-Frank Act. Unfortunately for Somers, and other would-be whistleblowers, the Supreme Court disagreed.
This decision is contrary to how the Dodd-Frank Act has been interpreted by many lower courts since its introduction in 2010. The Dodd-Frank Whistleblower Program includes payable awards to those who report information that leads to a successful action, as well as safeguards against employer retaliation. Whereas past interpretations offered these protections for those who reported issues internally, the Supreme Court decision suggests that the Act’s plain language limits its protections to specific instances where the individual has reported the violations in question directly to the SEC. Digital Realty Trust v. Somers, No. 16–1276, 2018 U.S. LEXIS 1377 (Feb. 21, 2018). Complaints that have been directed elsewhere (internal management, officers, etc.) may trigger other protections under older statutes such as the Sarbanes-Oxley Act of 2002, but the more extensive whistleblower protections that Dodd-Frank provides will only apply to those who contact the SEC.
The Supreme Court acknowledged that its decision would limit the protections once provided by the clause, but it ultimately concluded that the statutory language was clear in its intention and curtailing its reach would not “shrink to insignificance the clause’s ban on retaliation,” as Somers and the Solicitor General suggested in their arguments. The Court reasoned that the Act would not remove protections to those who report internally, as long as they also report to the SEC, as specified.
Though potentially limiting for whistleblowers themselves, there should be a relatively small practical impact on employers. Employers must still abstain from retaliating against employees who file internal complaints, at least in part because those complaints can continue to trigger liability under other federal and state laws, as suggested above. Furthermore, this decision could very well increase compliance risks by encouraging employees to report suspected wrongdoing directly to the SEC, rather than first bringing up these concerns internally with their employer. Be sure that your workplace’s policies on internal reporting are well-known, and that your employees know that they can bring forward complaints and concerns to management without fear of repercussion.