Endeavoring to root out corporate fraud, Congress passed the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010. The Dodd-Frank Act defines a “whistleblower” as “any individual who provides…information relating to a violation of the securities laws to the Commission, in a manner established by rule or regulation by the Commission.” Historically, most whistleblower complaints have been reported internally first, affording companies the benefit of addressing complaints before becoming embroiled in expensive litigation. The SEC stated in a report to Congress that 83 percent of whistleblowers who received SEC awards under Dodd-Frank since 2012, first reported allegations internally to their employer, and only later turned to the SEC.
On February 21, 2018, in Digital Realty Trust, Inc. v. Somers, the U.S. Supreme Court decided unanimously that a whistleblower is afforded protection against retaliation by the employer under Dodd-Frank only if the complaint is presented first to the SEC. In other words, Dodd-Frank’s anti-retaliation provision does not extend to an individual, who reports the allegations internally to his employer and not to the SEC.
In Digital Realty Trust, the plaintiff, a vice president, was terminated after internally reporting potential securities violations to senior management. The plaintiff did not report the allegations to the SEC. Shortly after his termination, the plaintiff filed a lawsuit in federal court claiming protection as a whistleblower under Dodd-Frank. Digital Realty, relying on the explicit statutory definition of “whistleblower,” moved to dismiss the case, arguing the plaintiff failed to report his claim to the SEC, and therefore, he was not afforded whistleblower protection. The federal district court and the Ninth Circuit Court of Appeals denied Digital Realty’s motion to dismiss.
On February 21, 2018, the U.S. Supreme Court unanimously reversed the decision of the Ninth Circuit citing the wording of Dodd-Frank, which defined whistleblowers as employees who provide “information relating to a violation of the securities laws to the Commission.” By narrowing the definition of whistleblowers to those who take their allegations to the “Commission,” the Court invalidated whistleblower claims first reported internally. Read previous articles concerning OSHA and whistleblowers here, here, and here.