Today the Supreme Court made it significantly harder for employees to bring Dodd-Frank “whistleblower” retaliation claims, which may result in more cases heading down the administrative path under the Sarbanes-Oxley Act of 2002. Gone are the days where an employee’s sarcastic email or veiled threat at the water cooler could conceivably constitute sufficient “reporting” of a securities law violation to grant whistleblower “standing” under Dodd-Frank.
As a result of today’s unanimous decision, employees must complain directly to the Securities and Exchange Commission, or they have no legal standing to bring retaliation claims under Dodd-Frank. The Court’s decision resolves the threshold question of Dodd-Frank “standing” that has been brewing for many years, splitting the U.S. Courts of Appeals.
The Dodd-Frank Wall Street Reform and Consumer Protection Act was passed in 2010. Like its related predecessor, the SOX, Dodd-Frank contained a “whistleblowing” provision prohibiting retaliation against individuals who reported perceived securities laws violations. However, since passage of Dodd-Frank in 2010, jurisdictions have split on the central question of what conduct provided “standing” to bring a whistleblower claim. Specifically, courts grappled over whether an individual needed to complain directly to the SEC to establish standing, or whether a complaint made to an employer was sufficient.
In Digital Realty Trust, Inc. v. Paul Somers, the Supreme Court resolved a slight ambiguity between the two definitions of “whistleblower” found in Dodd-Frank and SOX, and held that Dodd-Frank’s anti-retaliation provisions do not protect individuals who do not report securities law violations directly to the SEC. Put another way, an individual who merely complains to her employer does not have standing to bring a Dodd-Frank retaliation claim. This decision is a boon to companies subject to Dodd-Frank (public companies and affiliates with consolidated financials). Now, employers can largely avoid the inherent vagaries of determining what constitutes a Dodd-Frank “complaint” made internally by an employee. Employees with frivolous complaints may hesitate about reporting them to the SEC, as opposed to the employers’ human resources departments.
Although this decision significantly raises the bar for whistleblower “standing” under Dodd-Frank, employers should beware of possible liability for retaliation under SOX based on internal complaints. The decision pertains to Dodd-Frank only, and it is unclear whether the Court’s reasoning would also apply to SOX claims. Employers should conduct regular training to ensure that supervisors avoid retaliating against employees for raising the specter of securities law violations.
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