Supreme Court Narrows Definition of Whistleblower under Dodd-Frank

The Supreme Court has ruled the Dodd-Frank Act only covers whistleblowers who report to the SEC.

On February 21, 2018, the United States Supreme Court ruled unanimously in Digital Realty Trust Inc. v. Paul Somers ("Digital Reality Trust") that the definition of a "whistleblower" under the Dodd-Frank Act is limited to those who report securities law complaints to the U.S. Securities and Exchange Commission ("SEC"), resolving a split among the circuit courts. The split developed between the Ninth, Fifth, and Second Circuit Courts over how the Dodd-Frank Act ("Dodd-Frank") defines whistleblowers. The nation’s top court resolved the split by ruling that a person can only be considered a whistleblower under Dodd-Frank if they bring their complaint directly to the Securities and Exchange Commission ("SEC"), rather than just reporting it internally.

Split in the circuit courts

The Supreme Court ruling reverses the Ninth and Second Circuits’ rulings on the matter. The Ninth Circuit, along with the Second Circuit, had ruled that anti-retaliation protections in Dodd-Frank extended to whistleblowers who reported their concerns internally within a company in addition to those who report directly to the SEC. The Fifth Circuit, however, had ruled that the "whistleblowers" who are protected by the anti-retaliation provisions of Dodd-Frank are limited to those who bring their complaints directly to the SEC.

The Supreme Court sided with the Fifth Circuit on the issue. In a 9-0 decision, the Court ruled that the language of Dodd-Frank unambiguously states that a whistleblower is someone who brings information relating to securities law violation "to the Commission." The Digital Reality Trust case concerned an executive at a California-based real estate trust who alleged he was fired by his employer for bringing concerns of alleged wrongdoing by a supervisor to the senior management’s attention. The fired executive, however, never reported the alleged violations to the SEC.

Other protections against retaliation

While the Supreme Court ruling strips anti-retaliation protections for whistleblowers who do not report their claims directly to the SEC under Dodd-Frank, those whistleblowers who report internally may still be protected from retaliation under the Sarbanes-Oxley Act ("SOX"). SOX covers employees of public companies, their officers and their employees.

However, the awards recoverable under SOX are lower than those whistleblowers can receive under Dodd-Frank. While Dodd-Frank whistleblowers can be awarded double backpay plus interest, whistleblowers under SOX are limited to regular backpay and interest.

Representation for whistleblowers

For employees or executives who have concerns that their employer may be involved in a securities violation, it is important to talk to a securities law attorney as soon as possible. As the above article shows, the steps one takes in reporting alleged violations could have a dramatic impact on one’s rights against retaliation. An experienced attorney can help clients ensure their concerns are handled correctly and that their rights are defended against any possible retaliation.

The legal team at SFMS has significant experience litigating wage and hour and class action matters. If you have any questions regarding this subject or this posting, please contact Nick Lussier ([email protected]) or Chiharu Sekino ([email protected]). We can also be reached toll-free at (866) 540-5505.

Shepherd, Finkelman, Miller & Shah, LLP is a law firm with offices in California, Connecticut, Florida, New Jersey, New York, and Pennsylvania. SFMS is an active member of Integrated Advisory Group (www.iaginternational.org), which provides us with the ability to provide our clients with access to excellent legal and accounting resources throughout the globe. For more information about our firm, please visit us at www.sfmslaw.com.