9th Circuit Decision Protects Internal Whistleblowing Under Dodd-Frank
Author: Marta Moakley, XpertHR Legal Editor
March 16, 2017
The 9th Circuit Court of Appeals has issued a decision that individuals who complain internally, but who do not make an external complaint to the Securities and Exchange Commission (SEC), are protected whistleblowers under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank). In Somers v. Digital Realty Trust Inc., the 9th Circuit deepens the existing circuit split between the 2nd and 5th Circuit Courts of Appeals regarding the definition of whistleblower under Dodd-Frank.
Dodd-Frank's anti-retaliation provision defines whistleblower as "any individual who provides . . . information relating to a violation of the securities laws to the [SEC]." Dodd-Frank added anti-retaliation protections to the Sarbanes-Oxley Act of 2002 (SOX), which had been enacted in the aftermath of the Enron financial scandal. However, SEC regulations adopt a more expansive interpretation of whistleblower than that found in Dodd-Frank: the regulations allow for individuals who make only internal, and not external, reports to be protected under existing anti-retaliation protections.
In 2013's Asadi v. G.E. Energy (USA), LLC, the 5th Circuit Court of Appeals found that an employee who had made an internal report of the employer's possible violation of the Foreign Corrupt Practices Act (FCPA), without also providing the information to the SEC, did not meet the definition of whistleblower under Dodd-Frank's anti-retaliation provision. The 5th Circuit ruled on the plain meaning of the statute, and did not rely on the SEC's interpretations.
However, the 2nd Circuit, in 2015's Berman v. Neo@Ogilvy LLC, deferred to the SEC's expansive interpretation. Several SOX provisions mandate internal reporting, such as by lawyers and auditors. The 2nd Circuit took the position that SOX must be read as a whole, with its express cross-references to expanded protections, in order to ensure that those mandated by the law to first make internal reports are then protected from retaliation for making those same reports.
Regardless of the judicial circuit in which a corporation operates, an employer covered by the SOX and Dodd-Frank provisions should continue to:
- Encourage internal reporting by employees;
- Ensure that corporate compliance and reporting mechanisms are operative; and
- Discipline any employees who retaliate against co-workers for engaging in protected activities, such as reporting possible ethical violations.