The Dodd-Frank Act, signed into law in 2010, established a program for whistleblowing related to securities and commodities law violations. It created a private cause of action for whistleblowers to sue their employers for retaliation after reporting company misconduct. However, federal circuit courts are split as to when employees are eligible for anti-retaliation protection under Dodd-Frank. The answer hinges on whether the SEC must be notified of the potential misconduct or if an internal company complaint will suffice.
The Fifth Circuit, in Asadi v. G.E. Energy (USA), LLC, 720 F.3d 620 (5th Cir. 2013), held that the employee must report information to the SEC to qualify as a whistleblower, whereas the Second Circuit and the Ninth Circuit have held that Dodd-Frank protects internal whistleblowers as well as those who report to the SEC. See Berman v. Neo@Ogilvy LLC, 801 F.3d 145 (2d Cir. 2015); Somers v. Digital Realty Trust, Inc., 2017 WL 908245 (9th Cir. Mar. 8, 2017) (finding that Somers was wrongfully fired after he complained to upper management that a supervisor violated Sarbanes-Oxley internal-control requirements, but before Somers was able to report the same to the SEC). On April 26, 2017, Digital Realty Trust, Inc. petitioned the U.S. Supreme Court in hopes of a definitive resolution to the circuit split. See Digital Realty Trust, Inc. v. Somers, U.S., No. 16-1276.
If the U.S. Supreme Court hears the case and determines that individuals must report to the SEC to be eligible for protection, expect internal compliance programs to be ignored as would-be whistleblowers head straight to the SEC for protection. Although Dodd-Frank was designed to promote U.S. financial stability and improve financial transparency, absent a definitive ruling from the nation’s high court, an employee lodging an internal complaint could be fired as he or she is dialing the SEC’s number to report misconduct – just in time to render the employee ineligible for anti-retaliation protection under Dodd-Frank.
In the Second Circuit and the Ninth Circuit, employers are not permitted to terminate the employment of anyone who raises an internal complaint about how the company is conducting its business and must proceed with caution, even if the employee should be terminated on other grounds. If and until the U.S. Supreme Court opines, employees and employers alike should seek legal counsel to advise as to whether Dodd-Frank’s anti-retaliation protections are applicable with respect to internal reporting of alleged unlawful activity.
Note: we are monitoring proposed changes to Dodd-Frank, most of which focus on tax and regulatory relief, and will report on these issues in a future article.