On February 21, the U.S. Supreme Court issued an opinion in Digital Realty Trust, Inc. v. Somers, S. Ct. No. 16-1276 (Feb. 21, 2018), narrowing the scope of who qualifies for whistleblower protection under the Dodd-Frank Act. Dodd-Frank is a federal law which, in conjunction with the Sarbanes-Oxley Act, provides incentives and protections for whistleblowers who report suspected securities law violations to the Securities and Exchange Commission (SEC). The issue before the Court was whether “the anti-retaliation provision of Dodd-Frank extend[s] to an individual who has not reported a violation of the securities laws to the SEC and therefore falls outside the Act’s definition of ‘whistleblower[.]’” The Court held that the definition of “whistleblower” in Dodd-Frank did not include employees who failed to report suspected securities law violations to the SEC. While the Court’s decision was based on the statutory language of Dodd-Frank, the decision may present an argument for narrower interpretations of the protections afforded to employees under the whistleblower provisions of the anti-retaliation provisions of Title VII and the ADEA, and other laws such as the False Claims Act.
In reaching its decision, the Court looked to Dodd-Frank’s definition of “whistleblower” to be “any individual who provides . . . information relating to a violation of the securities laws to the Commission.” Accordingly, the Court held the Act plainly requires that an individual make a report to the SEC in order to trigger the whistleblower protections of the Act. Because the employee at issue here only reported the alleged securities violations internally to his employer, he was not a “whistleblower” under Dodd-Frank.
The most direct impact of the Court’s decision is the possible influx of whistleblower claims being brought under Dodd-Frank by sophisticated employees and business executives, who are now incentivized to report suspected securities violations directly to the SEC before, or in addition to, alerting their employer through internal complaint procedures.
Digital Realty addresses only Dodd-Frank’s whistleblower protections, but the decision may breathe new life into defenses under other statutes — e.g., the so-called “stepping out-of-role” defense, which has been applied to bar whistleblower claims under state law, and which some courts have adopted in retaliation and qui tam cases under the False Claims Act. The decision may also lend support for wider application of the “manager’s rule” recognized by some federal courts as a defense to oppositional claims under the anti-retaliation provisions of laws like Title VII and the ADEA. The “manager’s rule” recognizes that “a management employee that, in the course of her normal job performance, disagrees with or opposes the actions of an employer does not engage in protected activity for purposes of a Title VII retaliation claim.” The defense has been recognized by some courts, but not others. See Armour v. Homer Tree Serv., Inc., No. 15 C 10305, 2017 WL 4785800 (N.D. Ill. Oct. 24, 2017) (recognizing a split in the circuits over the applicability of the “manager’s rule” in the Title VII context and refusing to adopt it). Both of the manager’s rule and “stepping out of role” defenses require that an employee reporting misconduct or opposing unlawful discrimination must step outside his or her ordinary role with the employer in doing so to qualify for protection under the respective laws.
Thus, defenses that are not yet universally accepted may see more activity in light of the Digital Realty decision. Courts can expect to see this case cited in support of employer defenses to retaliation claims arguing that external reporting, outside of an employee’s ordinary duties, is required to bring a claim.