Earlier this year, the U.S. Supreme Court ruled that to receive protection against retaliation under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), a whistleblower employee must first report suspected securities law violations to the U.S. Securities and Exchange Commission (“Commission”). In that case – Digital Realty Trust, Inc. v. Somers – the Court also held that internal reporting within the employer’s organization, which previously had been protected in some jurisdictions, is no longer sufficient on its own.
While Digital Realty significantly narrowed the anti-retaliation protections of Dodd-Frank, there was a silver lining in the opinion. The Court affirmed that “dual reporters,” i.e., those whistleblowing employees who report both to the Commission and an employer, are protected from retaliation, regardless of whether the employer is aware of the individual’s disclosure to the Commission.
Understanding Commission Whistleblower Protections
Congress enacted Dodd-Frank and its predecessor, the Sarbanes-Oxley Act of 2002 (“SOX”), in the wake of financial scandals at Enron and WorldCom and the financial meltdown of 2008. The laws were intended to disrupt the “corporate code of silence” that kept employees from reporting securities and other violations to law.
One of the ways Dodd-Frank accomplished this was by creating a bounty program that rewards whistleblowers who provide original information to the Commission. Additionally, to assuage employees’ concerns regarding whistleblowing, both Dodd-Frank and SOX include anti-retaliation provisions. These provisions provide for, among other things, reinstatement, back pay, and attorneys’ fees, if an employee proves that he or she was subjected to unlawful retaliation as a result of his or her whistleblowing.
At issue in Digital Realty was whether reporting to the Commission is a prerequisite to stating a retaliation claim under Dodd-Frank. Dodd-Frank protects “whistleblowers,” which it defines as individuals who provide “information relating to a violation of the securities laws to the Commission.” Elsewhere, however, Dodd-Frank states that it protects a whistleblower who makes “disclosures that are required or protected under either Sarbanes-Oxley, the Securities Exchange Act of 1934 … or any other law rule or regulation subject to the jurisdiction of the Commission ….”
These two clauses created tension and confusion as to whether Dodd-Frank covers internal reporting that leads to retaliation. With Digital Realty, whistleblower advocates feared that the Court would hold that only reporting “to the Commission” provides protection under Dodd-Frank. In the event of such a holding, to protect against retaliation, employees would need to disclose to their employers the complaints they make to the Commission, obviating the confidential reporting guarantees of Dodd-Frank.
Finding Digital Realty’s Silver Lining
The Court in Digital Realty did indeed hold that internal reporting, by itself, is no longer sufficient to receive protection against retaliation under Dodd-Frank, but there was a silver lining – Justice Ginsburg affirmed that “dual reporters” are protected from retaliation even in situations where the employer is unaware of the individual’s disclosure to the Commission.
Writing for the Court, Justice Ginsburg noted that Dodd-Frank “protects a whistleblower who reports misconduct both to the SEC and to another entity, but suffers retaliation because of the latter, non-SEC, disclosure. That would be so, for example, where the retaliating employer is unaware that the employee has alerted the SEC.” Thus, an individual can report a violation to the Commission and to his or her employer (without informing the employer of the disclosure to the Commission) and still receive protection under Dodd-Frank. This addresses the aforementioned confidentiality concerns that in order to receive protection against retaliation employees would need to disclose to their employers that they had reported to the Commission.
What’s a Whistleblower to Do?
As a practical matter, following Digital Realty, employees who are concerned about potential securities violations should consider reporting simultaneously to one’s employer and the Commission.
The disclosure to the Commission can be accomplished either online, through the SEC website, or by completing and submitting a Form TCR (Tip, Complaint or Referral). Filing with the Commission prior to a retaliatory employment action should provide whistleblower protection under Dodd-Frank. Be forewarned, however, that if an employee suffers a retaliatory employment action and has not yet disclosed his or her complaint to the Commission, then, unfortunately, under Digital Realty, he or she is likely out of luck for protection under Dodd-Frank (although there may still be a viable SOX retaliation claim).
Digital Realty may have the unintended effect of incentivizing employees to disclose their concerns to the Commission, an outcome sure to be unwelcome to employers. Until Congress remedies the issue, employees who are concerned about possible securities violations should consider consulting with a whistleblower attorney in advance of potentially disclosing those concerns to the Commission and one’s employer.