Whistleblowers are vital to exposing bad behavior within the walls of corporate America. Yet, regulations that offer whistleblower protections may be significantly limited during the U.S. Supreme Court’s (SCOTUS) current term. An example of this is the case Digital Realty v. Somers, which seeks to sidestep anti-retaliation measures enacted by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank).
Digital Realty, a global provider of data centers, has asked the Court to overturn a lower court decision that found in favor of the company’s former Vice President Paul Somers. Somers was fired after reporting alleged violations of securities law to senior management. Digital Realty argues that Somers should not have been afforded Dodd-Frank protections because he reported the potential wrongdoing internally and not directly to the U.S. Securities and Exchange Commission (SEC).
Dodd-Frank was enacted in response to the Great Recession “to provide many new and stricter regulations of the financial industry,” the American Bar Association explains. It also included a set of anti-retaliation provisions to better protect whistleblowers in the areas of consumer protection and commodities. The protections were added as an extension of Section 21F of the Securities Exchange Act of 1934.
Prior to the publication of the final Dodd-Frank Act, the U.S. Chamber of Commerce (Chamber) contended that the proposed protections encouraged employees to sidestep a company’s internal compliance program and report directly to the SEC. In an effort to appease the Chamber, federal regulators included provisions addressing this concern. The provisions, including financial incentives, encouraged or required employees to report misbehavior through established internal compliance programs before reporting the conduct to the SEC.
However, after Dodd-Frank was enacted, the Chamber and some of the country’s largest corporations made an about-face relating to the policy and began “waging war against their own compliance programs,” according to Law360. Courts often ruled in favor of companies that retaliated against employees who reported wrongdoing internally. Yet, the lower court and the Ninth Circuit agreed with Somers that employees who report misconduct through internal corporate channels should benefit from Dodd-Frank anti-retaliatory protections.
Should SCOTUS agree with Digital Realty, the consequences could reach beyond whistleblowers. If employees no longer feel they can safely report misconduct internally, “corporate compliance programs will be dead,” Law360 reports. Some legal analysts believe considerable damage has already occurred and battle lines drawn – companies vs. their own corporate compliance programs.
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