In a recent case, Digital Realty Trust, Inc. v. Somers, decided on February 21, 2018, the U.S. Supreme Court clarified that the Dodd-Frank Act – passed in 2010 in the wake of the financial crisis – only protects whistleblowers from retaliation if they report violations of securities laws to the U.S. Securities and Exchange Commission (SEC). According to the Court, the Dodd-Frank Act does not protect whistleblowers from retaliation if they only report their concerns internally to the company, but do not report information to the SEC.
The Somers decision provided clarity on this issue, as the federal courts had been split on whether the Dodd-Frank Act had protected whistleblowers who reported securities violations internally within the company, but did not report their concerns to the SEC. The Supreme Court explained that the purpose of the Dodd-Frank Act was to encourage people to report information to the SEC, so limiting the protection in this statute to whistleblowers who report information externally to the SEC is consistent with that purpose.
It is important to remember that whistleblowers who report what they reasonably believe to be fraud or violations of federal securities laws internally, but do not report information to the SEC, are still protected under federal law. Specifically, anti-retaliation provisions of the Sarbanes-Oxley Act of 2002 (“SOX”) prohibit retaliation against individuals who report what they reasonably believe to be fraud, or violations of federal securities laws, internally at their employer to supervisors or people responsible for investigating misconduct. 18 U.S.C. § 1514A(a)(1). The Supreme Court emphasized in Somers that these protections under SOX for people who only reported their concerns internally to their employer were still in place. In addition, SOX also protects individuals who report what they reasonably believe to be fraud or violations of federal securities laws to a federal regulatory or law enforcement agency (including the SEC), or to a member or a committee of Congress.
There are some significant differences between the whistleblower protections afforded by SOX and Dodd-Frank. The deadline to file a retaliation claim under SOX is 180 days; under Dodd-Frank, it is six years. Under Dodd-Frank, an employee who is subjected to unlawful retaliation is entitled to an award of double damages; no double damages are awarded for violations of SOX. Under Dodd-Frank, employees can file retaliation claims directly in federal court; under SOX, employees are required to file retaliation claims with OSHA, but are able to bring their SOX claims in federal court if OSHA has not rendered a final decision within a certain period of time.
If employees who report violations of federal securities laws want the protection of both SOX and Dodd-Frank, they can report their concerns internally, but they also must report their concerns to the SEC. Additional protections may also be available under federal or state law. Since there are complicated issues involved in taking such steps, it is advisable for employees to obtain legal advice from competent counsel.