Supreme Court Limits Whistleblower Claims Under Dodd-Frank

Whistleblower retaliation Dodd-Frank Alabama Employment law
The Supreme Court limited whistleblower retaliation claims under Dodd-Frank.

The United States Supreme Court recently released an opinion in which it narrowly defined the term “whistleblower” in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”).   Digital Realty Tr., Inc. v. Somers, No. 16-1276, 2018 WL 987345 (U.S. Feb. 21, 2018).   As a result, the Court limited the class of employees who can sue for retaliatory discharge under Dodd-Frank.  Under the Court’s interpretation, an employee is only entitled to protection if he or she directly reported violations of Dodd-Frank to the United States Securities and Exchange Commission (“SEC”).  Thus, employees receive no protection under Dodd-Frank for reporting violations internally at their company, or to some other source.

Under Section 922 of Dodd-Frank, a “whistleblower” is an individual who provides “information relating to a violation of the securities laws to the [SEC].”   Whistleblowers are entitled to protection under Dodd-Frank from retaliation.  In attempt to broaden Dodd-Frank’s whistleblower protections, the SEC adopted rules expanding the definition of “whistleblower” to employees who made internal complaints with their employers.

The employee in Digital Realty claimed that he was terminated after he reported alleged violations of the securities laws internally to company management.  The employee did not make a report to the SEC, and his employer argued that the claim was barred by the express language of Dodd-Frank.  The Ninth Circuit Court of Appeals nevertheless relied upon the SEC’s interpretation and found that the employee was entitled to whistleblower protection.

The Supreme Court’s opinion unanimously reversed the Ninth Circuit.  The Court particularly relied upon the clear statutory language of Dodd-Frank, which defined a “whistleblower” as a person who made a report to the SEC.  The Court also found that Congress’s “core objective” in Dodd-Frank was “to prompt reporting to the SEC. ”

The Digital Realty decision is a mixed blessing for employers.   On the one hand, it limits the circumstances in which an employee can sue under Dodd-Frank.   On the other hand, Digital Realty could cause employees to skip internal complaint procedures and proceed straight to the SEC.