U.S. Supreme Court Issues Decision on Anti-Retaliation Provision of Dodd-Frank Act

Volume 17, Issue 2
February 23, 2018

On February 21, 2018, the United States Supreme Court issued a decision interpreting the anti-retaliation provision of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”). In Digital Realty Trust, Inc. v. Somers, the Court ruled that Dodd-Frank’s anti-retaliation provision does not apply to an individual unless he/she reports a violation of securities laws to the Securities and Exchange Commission (“SEC”).

Both the Dodd-Frank Act and the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) were passed by Congress to “root out corporate fraud.” Both encourage individuals to report financial misconduct and protect such “whistleblowers” from retaliation for making reports. Sarbanes-Oxley applies to all “employees” who report misconduct to the SEC, any other federal agency, Congress, or an internal supervisor. Conversely, Dodd-Frank defines a “whistleblower” as “any individual who provides . . . information relating to a violation of the securities laws to the [SEC].”

Paul Somers, Vice-President of Digital Realty Trust, Inc., argued that he was terminated from his employment in violation of the Dodd-Frank Act shortly after he reported to senior management suspected securities law violations by the company. The trial court and the Ninth Circuit Court of Appeals allowed his lawsuit to proceed despite the employer’s argument that the Dodd-Frank Act did not apply to Somers who never made a complaint to the SEC. These courts relied, in part, upon a rule passed by the SEC broadening the definition of whistleblower to include those who made internal complaints to their employers.

The Supreme Court disagreed, relying upon the plain language of the Act which specifically provides whistleblower protection only to those who submit information to the SEC. The Court explained: “Courts are not at liberty to dispense with the condition-tell the SEC-Congress imposed.” Such an analysis is consistent with Dodd-Frank’s “core objective” — “to motivate people who know of securitieslaw violations to tell the SEC.” The Court explained that “Congress had a more far-reaching objective” in enacting Sarbanes-Oxley which “sought to disturb the ‘corporate code of silence’ that ‘discourage[d] employees from reporting fraudulent behavior not only to the proper authorities, such as the FBI and the SEC, but even internally.'” Accordingly, to gain protection from retaliation under the Dodd-Frank Act, an employee must report information to the SEC.

While this ruling does not require an employer to take any specific action, it is certainly good news as it should be up to Congress, not administrative agencies, to broaden a statute’s scope and application. Certainly, this case serves as a good reminder to ensure that your anti-retaliation policies and training programs are broad enough to encompass all types of protected conduct, including reports concerning financial misconduct or irregularities.

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