Supreme Court to Hear Internal Whistleblowing Case
Author: Marta Moakley, XpertHR Legal Editor
July 7, 2017
The US Supreme Court has agreed to hear Digital Realty Trust, Inc. v. Somers (Docket No. 16-1276), a case that should settle the question of whether the anti-retaliation provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank) applies to internal whistleblowers. The federal circuits are split on whether those employees who fail to report violations of securities laws to the Securities and Exchange Commission (SEC) are protected by Dodd-Frank's whistleblower provision. However, regardless of the jurisdiction in which an employer operates, it should engage in best practices with respect to internal or external whistleblowing.
Dodd-Frank's whistleblower provision protects "any individual who provides, or 2 or more individuals acting jointly who provide, information relating to a violation of the securities laws to the [SEC]." SEC rules issued in 2011 (17 C.F.R. § 240.21F-2) interpret the anti-retaliation provision to apply to all those individuals who make disclosures of suspected violations, whether those disclosures are made internally or directly to the SEC.
The present case arises out of the Ninth Circuit Court of Appeals, which interpreted Dodd-Frank's whistleblower provision to include all those individuals who report to the SEC as well as those who report internally.
However, the Fifth Circuit has held that Dodd-Frank's whistleblower protections apply only to those employees who provide information to the SEC, while the Second Circuit joins the Ninth Circuit in its more expansive interpretation. The Second and Ninth Circuits had deferred to the expansive SEC interpretations of the whistleblower provisions.
The US Chamber of Commerce filed a friend-of-the-court brief in support of the petitioner corporation, arguing that Dodd-Frank's plain language covers only external whistleblowing. If the more expansive interpretation were to be adopted, then the Chamber warns of a "proliferation of whistleblower litigation under the Dodd-Frank Act" because the claims would be filed in federal court under Dodd-Frank (as opposed to processing under SEC administrative procedures), which has a longer statute of limitations period and more appealing remedies.
The Supreme Court addressed the definition of a whistleblower in the 2014 Lawson v. FMR, LLC case, in which it allowed for an expansive interpretation under the SOX whistleblower provision to include contractors of covered public companies.