Risk & Compliance

High Court Limits Scope of Whistleblower Law

The justices find the anti-retaliation provisions of Dodd-Frank apply only to employees who complain of misconduct to the SEC.
Matthew HellerFebruary 21, 2018
High Court Limits Scope of Whistleblower Law

The U.S. Supreme Court on Wednesday adopted a narrow reading of the Dodd-Frank financial reform law that may make it more difficult for whistleblowers to sue employers for retaliating against them.

The law’s anti-retaliation provisions apply only if the whistleblower makes a complaint to the Securities and Exchange Commission, the justices said in ruling against Paul Somers, a former employee of a real estate trust who claimed he was fired after he complained to top executives about possible misconduct in an Asian branch office.

“Dodd-Frank’s anti-retaliation provision does not extend to an individual, like Somers, who has not reported a violation of the securities laws to the SEC,” Justice Ruth Bader Ginsburg wrote for the court in a unanimous decision.

According to Reuters, “The ruling could inhibit employees from trying to resolve complaints of wrongdoing in-house without involving the SEC, and also could impede retaliation suits by workers who accuse businesses of firing them for reporting such conduct.”

The case focused on Dodd-Frank’s definition of a whistleblower as “any individual who provides … information relating to a violation of the securities laws to the Commission.”

The Trump administration, which backed Somers in his suit against Digital Realty Trust, had argued that a narrow interpretation would “gut much of the protection” afforded to whistleblowers by Dodd-Frank.

The law sought to make it easier for whistleblowers to sue for retaliation than the pre-crisis Sarbanes Oxley Act, which defines a whistleblower more broadly as all employees who report misconduct to the SEC, any other federal agency, Congress, or an internal supervisor.

Justice Ginsburg said a plain-text reading of Dodd-Frank “undoubtedly shields fewer individuals from retaliation,” but she disagreed with the government that “this consequence ‘vitiate[s]’” the law’s protections.

Under the court’s interpretation, she wrote, the law “protects a whistleblower who reports misconduct both to the SEC and to another entity, but suffers retaliation because of the latter, non-SEC, disclosure.”

The decision reversed the 9th U.S. Circuit Court of Appeals, which ruled last year that Dodd-Frank covers a wide array of whistleblower disclosures.