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Dodd-Frank Act Whistleblowers Must Blow the Right Whistle to get Protection

This February, the U.S. Supreme Court held “whistleblower” anti-retaliation protection under the Dodd–Frank Wall Street Reform and Consumer Protection Act only applies to employees who actually report information to the Securities and Exchange Commission (SEC). 

The Dodd-Frank Act is a monumental piece of financial reform legislation which was signed into law by the Obama Administration in 2010 as a response of the 2008 financial crisis.  The Act is nearly 2,300 pages aimed at promoting the financial stability of the US by increasing accountability and transparency in the financial system.

Among other provisions, the Act provides an expansive and rewarding whistleblower program whereby the SEC will pay awards to eligible whistleblowers who voluntarily provide the SEC with original information that leads to a successful enforcement action that yields monetary sanctions of over $1 million.  The Act expressly prohibits retaliation against whistleblowers and provides them with a private cause of action in the event they are discharged or discriminated against by their employers in violation of the Act.   Now we know the only protected whistle is to the SEC. 

In Digital Realty Trust, Inc. v. Somers, an employee suspected several securities law violations and reported his suspicions to his supervisor.  The employee never actually reported his suspicions to the SEC.  The employer later terminated the employee who then sued on a retaliation claim.  The lower courts found the whistleblower protections applied to the employee but the Supreme Court disagreed – holding such an internal report was not enough to trigger protection under the Act.

The Court applied a two-part test to determine if the employee satisfied the requirements of being protected under the Act.  First, the Act defines a whistleblower as someone who reports a securities law violation to the SEC.  Second, the Act outlines various protected activity, which includes providing information to the SEC, participating in an SEC investigation, and reporting a securities law violation to one’s supervisor.

The Court held that while the employee satisfied the second part of the test – by reporting a securities law violation to his supervisor – he did not satisfy the first part of the test because he did not actually report a securities law violation to the SEC.

This is interesting because the word “whistleblower” no longer has a common meaning.  Although this ruling could be seen as a “win” for employers, it is still unwise to retaliate against employees for internally reporting violations of the law.  While the Supreme Court has clarified what it means to be a whistleblower under the Dodd-Frank Act, there are a number of other laws providing whistleblower protection that might lead to a vastly different result.  Also, other theories may be used to protect whistle blowers, such as a discharge in violation of public policy.  Despite the Supreme Court’s finding, employers should continue to consider an employee’s whistleblowing-type complaints, even internal ones, when deciding to adversely impact an employee.  Employers facing these issues should proceed cautiously and consult with competent counsel before proceeding.

Brody and Associates regularly advises its clients on all labor management issues and provides various training programs.  If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.454.0560.