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Supreme Court Holds Internal Complainants Are Not Dodd-Frank Whistleblowers

By John E. Thomas, Elena Marcuss, David Greenspan & John G. McDonald on February 27, 2018
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In an important case clarifying the scope of the anti-retaliation provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the U.S. Supreme Court held on Feb. 21, 2018, that the law unambiguously requires an individual to report a securities law violation to the SEC in order to claim whistleblower protection under the provision. This means an employee who makes only an internal report may be protected by the Sarbanes-Oxley Act of 2002, but is not also protected under Dodd-Frank.

In 2010, Congress passed Dodd-Frank and established a robust whistleblower program designed to motivate employees to report securities law violations to the U.S. Securities and Exchange Commission (SEC). In addition to entitling whistleblowers to cash rewards, Dodd-Frank includes an anti-retaliation provision that prohibits employers from discriminating against or terminating employees for making such reports to the SEC.

The interplay between the definition of “whistleblower” and the identification of protected activity under Dodd-Frank has confounded the courts since shortly after Congress passed the law. A “whistleblower” is an individual who reports a securities law violation to the SEC.  However, “protected activity” includes making disclosures required or protected under the Sarbanes-Oxley Act, which does not require a report to the SEC.

To harmonize these provisions, some courts concluded that including Sarbanes-Oxley-protected reports created a narrow exception to the requirement that an employee provide information to the SEC in order to claim whistleblower status under Dodd-Frank. The SEC likewise expanded the definition of “whistleblower” when it issued its final rule implementing Dodd-Frank to cover an employee who reported security violations to his or her supervisor, but not to the SEC. This definition was codified in 17 C.F.R. § 240.21F-2. In 2015, the SEC reiterated that whistleblower protection is not contingent on an employee providing information to the SEC, but even covers internal reports of wrongdoing.

In the case before the Supreme Court, Paul Somers sued his former employer, Digital Realty Trust Inc., alleging that Digital Realty fired him shortly after he reported to senior management (but not to the SEC) suspected securities law violations. Both the U.S. District Court for the Northern District of California and the U.S. Court of Appeals for the Ninth Circuit found Dodd-Frank ambiguous and deferred to the SEC’s final rule and interpretive guidance. The case presented the Supreme Court with a circuit split, in which the Ninth and Second Circuits held that employees were protected by merely reporting to their supervisor, while the Fifth Circuit held that employees must provide information to the SEC to avail themselves of the law’s protections.

The Supreme Court found no ambiguity in Dodd-Frank’s anti-retaliation provision, which protects an individual who provides “information relating to a violation of the securities laws to the Commission.” The court found that, not only does the plain language of the law require a report be made to the SEC, but also that Dodd-Frank’s “core objective” was to motivate reports to the SEC. Dodd-Frank’s purpose, the court found, was narrower than that of the Sarbanes-Oxley Act, which was designed to disturb the “corporate code of silence” that kept employees from reporting fraud “even internally.”

This case presents a welcome resolution to the circuit split over whether internal whistleblowers can maintain a Dodd-Frank anti-retaliation lawsuit against their employers. The distinction and decision are important because significant differences exist between the anti-retaliation provisions of Dodd-Frank and Sarbanes-Oxley. To seek relief under Sarbanes-Oxley, an individual must file a complaint with the Secretary of Labor within 180 days of the alleged violation. By contrast, Dodd-Frank’s whistleblower provision contains a six-year statute of limitations and no administrative exhaustion requirement. The two laws also provide for different remedies.

To read the Supreme Court’s opinion, click here.

For further information about Sarbanes-Oxley, Dodd-Frank or whistleblower protections, please contact the authors, your McGuireWoods contact or a member of McGuireWoods’ labor and employment or government investigation and white collar litigation groups.

Photo of John E. Thomas John E. Thomas

John practices in the area of labor and employment. He regularly counsels employers regarding employment agreements, policies and handbooks, misappropriation of trade secrets, employee terminations, and severance agreements. With a focus on employment-related litigation, John represents employers facing claims of harassment, retaliation, and…

John practices in the area of labor and employment. He regularly counsels employers regarding employment agreements, policies and handbooks, misappropriation of trade secrets, employee terminations, and severance agreements. With a focus on employment-related litigation, John represents employers facing claims of harassment, retaliation, and discrimination under a host of employment laws including the FLSA, the FMLA, Title VII, the ADA, and the ADEA. Moreover, he has experience representing employers facing claims concerning defamation, breach of employment contracts, and covenants not to compete.

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Photo of Elena Marcuss Elena Marcuss

Elena represents management in employment and traditional labor matters. She defends employers in federal and state courts against individual and collective claims of workplace discrimination and rights violations, such as statutory claims under Title VII of the Civil Rights Act of 1964, Section…

Elena represents management in employment and traditional labor matters. She defends employers in federal and state courts against individual and collective claims of workplace discrimination and rights violations, such as statutory claims under Title VII of the Civil Rights Act of 1964, Section 1981 of the Civil Rights Act of 1866, the Family and Medical Leave Act (FMLA), the Americans with Disabilities Act (ADA), the Age Discrimination in Employment Act (ADEA), the Fair Labor Standards Act (FLSA), Maryland Wage Payment and Collection Law, the Sarbanes-Oxley Act (SOX), Executive Order 11246 and the National Labor Relations Act, as well as tort claims, such as wrongful discharge and defamation, and breach of contract claims.

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Photo of David Greenspan David Greenspan

David Greenspan is a trial lawyer whose practice focuses on proactive counseling and aggressive litigation of employee mobility disputes and complex employment matters. Mr. Greenspan works with his clients to identify and resolve issues before they become adversarial in nature. Mr. Greenspan also…

David Greenspan is a trial lawyer whose practice focuses on proactive counseling and aggressive litigation of employee mobility disputes and complex employment matters. Mr. Greenspan works with his clients to identify and resolve issues before they become adversarial in nature. Mr. Greenspan also serves his clients as a zealous advocate in litigation, arbitration and other administrative proceedings.

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Photo of John G. McDonald John G. McDonald

John is the managing partner of the Charlotte office and has practiced exclusively on the management side of labor and employment matters for more than 25 years. He regularly represents clients in employee mobility matters including counseling and litigating over non-compete, non-solicit and…

John is the managing partner of the Charlotte office and has practiced exclusively on the management side of labor and employment matters for more than 25 years. He regularly represents clients in employee mobility matters including counseling and litigating over non-compete, non-solicit and trade secret issues. John also represents employers in a wide range of employment discrimination and wage and hour matters in federal and state courts, as well as before the Equal Employment Opportunity Commission and U.S., and various State Departments of Labor. He has also represented employers in arbitrations before the American Arbitration Association and FINRA. John has represented employers in union counter-campaigns and in unfair labor practice trials before the National Labor Relations Board.

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  • Posted in:
    Corporate Compliance, International
  • Blog:
    Subject to Inquiry
  • Organization:
    McGuireWoods LLP
  • Article: View Original Source

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