The U.S. Court of Appeals for the Ninth Circuit on March 8, 2017, found that the whistleblower provisions of the Dodd-Frank Act applied to employees who raise concerns internally, and not just to those employees who make reports directly to the U.S. Securities and Exchange Commission (the "SEC"). The ruling finds that the anti-retaliation provisions of the Dodd-Frank Act also protects employees fired after making internal disclosures of alleged unlawful activity under the Sarbanes Oxley Act and other laws, rules, and regulations.
The Ninth Circuit decision in Somers v. Digital Realty Trust takes sides on an issue that has already resulted in a circuit split. The Second Circuit ruled that Congress did not intend to limit protections to whistleblowers who disclosed information to the SEC. The Sixth Circuit avoided the question altogether in a January decision, while the Fifth Circuit, the first to weigh in on the issue, ruled that Dodd-Frank limits the definition of "whistleblower" to those who report alleged securities violations to the SEC.
Judge Schroeder said, "we conclude that the SEC regulation correctly reflects congressional intent to provide protection for those who make internal disclosures as well as to those who make disclosures to the SEC."
The anti-retaliation provision in question states:
"No employer may discharge, demote, suspend, threaten, harass, directly or indirectly, or in any other manner discriminate against, a whistleblower in the terms and conditions of employment because of any lawful act done by the whistleblower
(I) in providing information to the Commission in accordance with this section;
(ii) in initiating, testifying in, or assisting in any investigation or judicial or administrative action of the Commission based upon or related to such information; or
(iii) in making disclosures that are required or protected under the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201 et seq.), this chapter, including section 78j-1(m) of this title, section 1513(e) of Title 18, and any other law, rule, or regulation subject to the jurisdiction of the Commission."
The issue decided by the Ninth Circuit involved subdivision (iii). This provision was added after the bill went through Committee so there is no legislative history to explain its purpose. The court ruled that the Sarbanes-Oxley Act and the Securities Exchange Act of 1934 mandate internal reporting and that this reporting is to occur before external reporting. So, in the courts opinion, leaving employees without protection for the required internal reporting may result in early retaliation before the regulators were informed.
This issue is almost certain to reach the Supreme Court to be resolved, unless Congress amends Dodd-Frank to clarify their intent. Corporate General Counsels should keep an eye on this issue as it works its way through the courts. GCSG will follow developments on this issue. Contact us at firstname.lastname@example.org with any question's or for more information.
- Opinion: Paul Somers, Plaintiff-Appellee, v. Digital Realty Trust Inc.
- U.S. Securities and Exchange Commission
- Full Text: Dodd-Frank Act
- Full Text: Sarbanes-Oxley Act
- Full Text: Securities Exchange Act of 1934