Will Supreme Court Limit Protection for Whistle-Blowers?

whistle blowerA case pending in the US Supreme Court could limit protections for people who say they were fired for reporting wrongdoing by their companies.

The case, Digital Realty Trust v. Somers, arose when Paul Somers, an executive with Digital Realty (a real estate investment trust) told his superiors at the company about what he thought were violations of securities laws.

Somers complained that his supervisor was taking actions to eliminate internal controls, which he believed violated the Sarbanes-Oxley Act, which deals with investor protections.

Somers was then fired by the company. Somers sued under the Dodd-Frank Act, a federal law.

Dodd-Frank

According to the US Securities and Exchange Commission (SEC),

The Dodd-Frank Act ... expressly prohibits retaliation by employers against whistleblowers and provides them with a private cause of action in the event that they are discharged or discriminated against by their employers in violation of the Act.

However, the actual definition of a "whistleblower" in the statute is as follows:

The term ‘whistleblower’ means any individual who provides, or 2 or more individuals acting jointly who provide, information relating to a violation of the securities laws to the Commission, in a manner established, by rule or regulation, by the Commission.

Emphasis added. The "Commission" means the SEC.

Internal Reporting

Companies have argued that the statute only covers employees who report wrongdoing to the SEC, and that employees who report wrongdoing internally, within their companies, aren't covered.

Courts are split on this issue.

The Second Circuit and Ninth Circuit found that Dodd-Frank protects whistleblowers who report wrongdoing in connection with securities laws only to their employers, but not to the SEC. The Fifth Circuit ruled that the statute only protects employees who report to the SEC.

The Ninth Circuit in the Somers case deferred to the SEC's own interpretation of the Dodd-Frank statute, which includes employees who report to their employers.

Plain Language

As the New York Times reported, during oral argument the Supreme Court justices seemed to favor the plain words of the statute, and to be leaning toward excluding from protection employees who only report to their employers.

About 90% of employees report their securities law concerns only to their employers. Only if this internal reporting fails to deal properly with the wrongdoing do some employees go to the SEC.

The Ninth Circuit reasoned that if Dodd-Frank didn't protect internal whistleblowers than it would be rendered almost meaningless.

Also, if employees are only protected against retaliation if they go direct to the SEC, this could hurt companies by depriving them of the opportunity to clean up their act before they're reported.

According to an article published by the NYU School of Law Program on Corporate Compliance and Enforcement,

The Dodd-Frank Act’s promise of robust anti-retaliation protection to those who speak up both within their companies and to law enforcement is critical to encouraging would-be whistleblowers to come forward. The SEC Whistleblower Program has been heralded as a “game-changer” for securities enforcement. Thousands of whistleblowers have provided information through the program since it launched in mid-2010, and it is estimated that more than a billion dollars have been recovered due to whistleblowers.

comments powered by Disqus

Find the Right Lawyer for Your Legal Issue!

Fast, Free, and Confidential

Call us today for a free consultation (855) 466-5776