The U.S. Supreme Court's decision this week in Digital Realty Trust, Inc. v. Somers shrinks Dodd-Frank's protections against workplace retaliation for corporate whistleblowers.
The once robust statute now leaves a gaping hole for those employees in the private sector who report securities related violations to their employer. Now, after the Supreme Court's ruling, employees are required to report directly to the Securities and Exchange Commission in order to avail themselves of legal protection under the statute - internal reporting is no longer enough.
"This decision is bad news for both employees and employers," says Tammy Marzigliano, a partner at Outten & Golden LLP and co-chair of the firm's Whistleblower Retaliation Practice Group. "When employees report problems internally, it gives companies the opportunity to address potential violations without the cost and risk of government intervention. Employees were empowered to raise compliance and other such issues directly to their employer and did so with the weight of law behind them to protect against retaliation. That doesn't exist anymore for employees in the private sector. To obtain protection under Dodd-Frank, whistleblowers must now go straight to the government."
"The upside is that Sarbanes-Oxley remains intact," Marzigliano says. "But for employees who are not covered by Sarbanes-Oxley - primarily those who work for privately-held companies - the path to protection just became much narrower."
Sarbanes-Oxley is still an important legal protection, but covers fewer employees, and requires them to first file complaints with the federal government within six months of the retaliation. Dodd-Frank, on the other hand, has a six-year statute of limitations.
"Now that the Court has spoken, we will need to work with Congress on a legislative fix for this important issue," Marzigliano says.