Featured Authors: Gregory Keating, Partner, Choate, Hall & Stewart; Alison F. Reif, Partner, Choate, Hall & Stewart; Lyndsey M. Kruzer, Associate, Choate, Hall & Stewart
Article originally appeared on choate.com.
On March 8, 2017, the United States Court of Appeals for the Ninth Circuit held that the Dodd Frank anti-retaliation provisions protect individuals who complain internally and are not strictly limited to those individuals who make an external complaint with the U.S. Securities and Exchange Commission (SEC). This ruling furthers a conflict on this issue and sets up a likely United States Supreme Court review.
What You Need to Know
In Somers v. Digital Realty Trust, the Ninth Circuit joined the Second Circuit in adopting a very broad interpretation of Dodd Frank that will extend anti-retaliation protection to any individual who raises concerns internally. The plaintiff in Somers worked as a vice president at a realty trust company and raised concerns with senior management about possible securities violations. Shortly thereafter, he was terminated. He sued, invoking the anti-retaliation protections of the Dodd Frank Act. That statute on its face contains an express—and very narrow—definition of “whistleblowers” who are entitled to anti-retaliation protection: it only protects individuals who provide “information relating to a violation of the securities laws to the [Securities and Exchange] Commission.” The statute subsequently provides, however, that employers cannot engage in retaliation for “making disclosures that are required or protected under the Sarbanes-Oxley Act (SOX).” Notably, SOX expressly protects individuals from retaliation who report internally to their employer.
Prior to Somers, the United States Court of Appeals for the Fifth Circuit first examined the issue in Asadi v. GE Energy and concluded that the definitional plain language of the statute was unambiguous and limited protection only to those who report externally to the SEC.
Subsequently, the Second Circuit in Berman v. Neo@Ogilvy concluded that the contrasting language in Dodd Frank rendered the statute ambiguous and accordingly elected to give deference to the SEC’s interpretation of the statute. The SEC, which has taken a very aggressive position on the issue and has filed amicus briefs in every instance, has taken the position that Dodd Frank protects from retaliation not only those who complain to the SEC but also anyone who reports internally. The Ninth Circuit in Somers went even further than Berman: rather than finding the statute ambiguous and deferring to the SEC, the Somers court repeatedly cited the broad remedial purpose of Dodd Frank and swept aside the plain meaning in the definition section, stating that “definitions are, after all, just one indication of meaning—a very strong indication, to be sure, but nonetheless one that can be contradicted by other indications.” The Court concluded that the anti-retaliation provisions of Dodd Frank “unambiguously and expressly protects from retaliation all those who report to the SEC and who report internally.”
Read More: 5 Trends in Whistleblower Hotlines and Protections to Be Aware of in 2017
What You Need to Do
The question of the scope of anti-retaliation whistleblower protection under Dodd Frank is a very significant issue for employers.
In light of the growing expansion of whistleblower protections, employers should both carefully monitor the evolving legal landscape and commit resources to enhanced compliance initiatives including audits of existing agreements, training on retaliation, and review of complaint management systems and investigations protocols. The question of the scope of anti-retaliation whistleblower protection under Dodd Frank is a very significant issue for employers. Should the universe of protected individuals expand to include every internal complaint, employers face substantially enhanced liability risk. In this regard, it should be noted that individuals who report internally are already protected from retaliation by SOX. That statute, however, requires that such individuals file a charge of retaliation with the Department of Labor within six months of an adverse action. By contrast, the Dodd Frank anti-retaliation statute of limitations gives individuals as much as nine years to file a claim in federal court and, unlike SOX, provides stiff penalties such as double back pay. Likely review by the United States Supreme Court, while still some time away, will ultimately resolve the issue and may also provide insight into the extent of judicial deference to government agencies like the SEC.
Read More: When Managing Whistleblower and Retaliation Risk, Tools are Important – Processes and People are Critical