A vice president of portfolio management at Digital Realty Trust was fired after reporting to senior management that his supervisor had eliminated internal controls in violation of federal law. The fired worker sued the company under Dodd-Frank, claiming retaliation.
This worker’s internal complaint alleging company violations of securities laws triggered federal whistleblower protections without a formal complaint to the Securities Exchange Commission (SEC), ruled the U.S. Ninth Circuit Court of Appeals. The decision adds to a split in the federal courts of appeal. The Ninth Circuit reasoned that Congress’s underlying purpose was to protect whistleblowers, whether they report violations internally or to the government. The case will now continue on to trial.
Whistleblower Protections and Dodd-Frank
The Dodd-Frank Wall Street Reform and Consumer Protection Act prohibits employer retaliation against employees whose jobs relate to consumer financial products or services and who complain about company violations of securities laws. In certain cases, whistleblowers may also claim a percentage of sanctions imposed against the company.
The disagreement between the courts is over the type of complaint the whistleblower must make. Dodd-Frank defines "whistleblower" to mean one or more individuals reporting a securities law violation "to the Commission," but elsewhere the law seems to protect disclosures that only involved internal reporting. In 2013, the Fifth Circuit ruled that workers who complain internally but fail to notify the SEC are not covered by Dodd-Frank. In 2015, the Second Circuit disagreed, finding internal-only complaints could trigger the law’s protection. The Ninth Circuit has now sided with the Second Circuit, determining whistleblower protections also apply to internal complaints (Somers v. Digital Realty Trust, Inc., 9th Cir, March 2017).
Tips for Employers:
Unwary employers may now see more retaliation complaints from internal whistleblowers. Vigilant can help by ensuring you have solid compliance policies aimed at preventing retaliation. See our Legal Guide, “Retaliation Claims: How to Avoid Them.” If you have questions about responding to employee complaints or whistleblowing, be sure to speak with your Vigilant employment attorney. They can discuss compliance options to help you minimize the risk of costly lawsuits and retaliation claims.