U.S. Supreme Court Trims Corporate Whistle-Blower Protections

Updated on
  • Nine justices rule unanimously on reach of Dodd-Frank law
  • Court says law protects only people who complain to SEC

The U.S. Supreme Court narrowed an anti-retaliation provision in the 2010 Dodd-Frank financial law, insulating publicly traded companies from some whistle-blower lawsuits.

The court unanimously threw out a lawsuit against Digital Realty Trust Inc. by a former company official who was fired after complaining internally about alleged violations of federal securities laws.

Writing for the court, Justice Ruth Bader Ginsburg said Dodd-Frank authorized whistle-blower lawsuits only by people who had reported the alleged misconduct to the Securities and Exchange Commission. Lower courts had been divided on the issue.

The core purpose of the the Dodd-Frank whistle-blower provision was "to motivate people who know of securities law violations to tell the SEC," Ginsburg wrote, quoting from a Senate report.

The disputed provision is one of two major federal protections for corporate whistle-blowers. The 2002 Sarbanes-Oxley Act lets workers press complaints with the Labor Department even if they didn’t report the alleged violation to the SEC. Dodd-Frank allows whistle-blowers more time to file cases and authorizes larger awards.

Ginsburg said Congress had "a more far-reaching objective" with Sarbanes-Oxley. "It sought to disturb the corporate code of silence that discouraged employees from reporting fraudulent behavior not only to the proper authorities, such as the FBI and the SEC, but even internally."

San Francisco-based Digital Realty pointed to a provision in Dodd-Frank that defines whistle-blowers as people who provide information to the SEC. The suing employee, Paul Somers, said that definition doesn’t apply to the anti-retaliation part of the law.

Justice Clarence Thomas wrote a separate opinion, joined by Justices Samuel Alito and Neil Gorsuch, to say the court should have limited its analysis to the text of the statute and not consulted the Senate report.

The Trump administration backed Somers, defending an SEC rule that said internal whistle-blowers are protected even if they don’t lodge a complaint with the agency. The SEC received more than 4,200 reports of misconduct in 2016.

The case is Digital Realty v. Somers, 16-1276.

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