On February 21, 2018, the US Supreme Court narrowed the definition of the term “whistleblower” under the Dodd-Frank Act. The Court found that to be a “whistleblower” covered by Dodd-Frank’s anti-retaliation provision, an employee must report concerns about their employer’s conduct to the Securities and Exchange Commission. In other words, an employee who reports such concerns only internally is not entitled to protection under Dodd-Frank.
The Court relied on the purpose of the Dodd-Frank Act and the definition of the term “whistleblower” under the Act, which provides that a whistleblower is an individual who provides “information relating to a violation of the securities laws to the Commission.” The Court found that the definition of whistleblower and the purpose of the Act left no doubt that to be protected under Dodd-Frank, the employee must report to the SEC.
The Court’s opinion also resolved a circuit split between the Fifth and Ninth Circuits. The Fifth Circuit previously held that to be protected under Dodd-Frank’s anti-retaliation provision, whistleblowers must complain to the SEC. However, the Ninth Circuit disagreed and, in favor of broader protection, found that raising complaints internally was sufficient to warrant protection under Dodd-Frank.
Notably, the Court’s opinion does not impact whistleblower protection under the Sarbanes-Oxley Act, which still applies to employees who report issues only internally. However, unlike under Dodd-Frank, which permits an employee to file a claim directly in federal court within six years, under Sarbanes-Oxley, employees must first file their claim with the Secretary of Labor within 180 days. Further, the remedies available to a whistleblower under Sarbanes-Oxley are different (and more limited) than under Dodd-Frank.
Impact on Employers
This is a bit of a good news / bad news scenario for employers.
- The good news is that the definition of who is a whistleblower and entitled to protection under protection Dodd-Frank’s anti-retaliation is narrowed.
- But the bad news is that employees may now bypass reporting complaints internally and go directly to the SEC to ensure protection as a whistleblower. This may result in companies being precluded from handling and resolving potential concerns internally before the SEC gets involved.
For more information, please contact your Baker McKenzie lawyer.