The Supreme Court is set to decide whether corporate whistleblowers are protected from being fired if they disclose wrongdoing to company officials rather than to the Securities and Exchange Commission.
At issue in the case to be argued Tuesday is the scope of the Dodd-Frank Wall Street Reform Act, which aimed to encourage whistleblowers and prevent the kind of retaliation seen against those who tried to sound an alarm at Lehman Bros. and other firms that collapsed during the Great Recession.
But it is unclear that the law does as much as its sponsors and supporters assumed. It faces a stiff challenge based on “textualism,” the approach that has won favor with most of the justices, and none more so than new Justice Neil M. Gorsuch. He has repeatedly declared his devotion to deciding cases based on the text of the law, not its broader purpose. Although the 2010 law clearly says companies may be sued if they “discharge [or] demote” employees for disclosing wrongdoing, it separately defines a whistle-blower as an “individual who provides information … to the commission.”
The question is now whether that narrow definition excludes those who step forward to expose potential frauds by reporting them internally, rather to the SEC.
And if a company quickly fires such an employee — before a report is made to the SEC — is the whistleblower left unprotected by the Dodd-Frank law?
Michael Celio, a corporate defense lawyer in San Francisco, said the SEC is likely to lose in the Supreme Court, but he too is wary about the outcome.
“Given Justice Gorsuch’s position, they may say the SEC got this wrong,” he said. “But the danger is this would give people an incentive to go the SEC rather than to someone in their company. That’s the bad news. Every company wants people to report internally so they can fix things quickly.”
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