When Text and Policy Conflict: Internal Whistleblowing Under the Shadow of Dodd-Frank

Abstract

This Article considers whether the text of the Dodd-Frank Act protects internal whistleblowers from retaliation, and if not, whether it should. After the economic meltdown following the 2008 financial crisis, Congress extended protections to corporate whistleblowers by enacting Dodd-Frank. Since then, numerous lower federal courts have disagreed over whether Dodd-Frank’s whistleblower protections apply to employees who report their employer’s securities violations internally, but not to the Securities and Exchange Commission (SEC). In Digital Realty Trust, Inc. v. Somers, the Supreme Court resolved this division of authority by holding that Dodd-Frank’s whistleblower protections only apply to employees who report their employer’s securities violations to the SEC.

After discussing current statutory and case law, this Article makes two claims. First, it argues that the Court’s decision in Digital Realty is correct as a matter of statutory interpretation. While those who may disagree with the Court’s holding have advanced strong policy arguments to support their position, such arguments cannot trump the unambiguous meaning of Dodd-Frank’s text. That meaning confirms that Dodd-Frank’s whistleblower protections do not apply to internal whistleblowers. And even if Dodd-Frank’s text initially appears ambiguous, its legislative history resolves this ambiguity by confirming that only whistleblowers who report misconduct to the SEC are protected.

Nevertheless, this Article further argues that Congress should amend Dodd-Frank to protect from retaliation employees who only report their employer’s securities violations internally. The novel and easily-adoptable amendment that this Article proposes has the potential to reduce the vulnerability of certain classes of employees to employer retaliation, incentivize employees to make internal disclosures of securities violations, and reduce the costs of investigations by channeling them internally. Most importantly, the proposed amendment would align Dodd-Frank with the doctrinal foundation of whistleblower programs in the United States, which is the idea that regulatory compliance requires robust external and internal whistleblower protections.

Keywords: Whistleblowing, Internal Whistleblowing, The Dodd-Frank Act, Dodd-Frank, Sarbanes-Oxley, SOX, Statutory Interpretation, Employment Law, Administrative Law

JEL Classification: K2, K22, K23, K4, K42