The Supreme Court held oral argument on whether Dodd-Frank protects an employee against retaliation even if the employee does not report misconduct to the SEC. The employer, who petitioned the Court, argues that the statute’s definition of “whistleblower” as requiring SEC reporting applies equally to the award and anti-retaliation provisions. Some Justices seemed skeptical of the employee’s counterarguments that the definition plainly does not apply to the retaliation portion or, if the law is ambiguous, that the SEC’s rule is entitled to deference (Digital Realty Trust, Inc. v. Somers, November 28, 2017).
Statutory definition. Exchange Act Section 21F, added by Dodd-Frank, bars employers from discriminating against “a whistleblower” for providing information to the SEC; being involved in an investigation or action based on the information; or (in the controversial subsection (iii)) making disclosures required or protected under the securities laws. That third category of protected disclosures includes certain categories of internal reporting and other reports that are not necessarily made to the SEC. But “whistleblower” is defined elsewhere in Section 21F as “any individual who provides … information relating to a violation of the securities laws to the Commission, in a manner established, by rule or regulation, by the Commission.” In light of this apparent tension, many employees argue that the statute is ambiguous, warranting Chevron deference to the SEC’s rule, which does not require reporting to the agency.
Circuit split. The Court granted certiorari to review the Ninth Circuit holding that internal whistleblowers are protected from employment retaliation, which deepened a circuit split. The Ninth Circuit agreed with the district court that the SEC’s rule aligned with Congress’s overall purpose to protect whistleblowers, whether they report violations internally or to the government. The language of subsection (iii) illuminates Congress’s intent to protect certain professionals, namely auditors and attorneys, who are required to report violations internally before they can do so externally. The fact that the statute describes whistleblowers as employees who report to the SEC did not dispose of the employee’s argument because terms can operate differently in different contexts, as the Supreme Court reasoned in upholding most of the Affordable Care Act (King v. Burwell (U.S. 2015)). One judge on the panel dissented on the grounds that this case should be “quarantined” to its specific facts.
Supreme Court contends with definition. The Justices focused much of their questioning on the operation of this whistleblower definition. In the view of the whistleblower/respondent and government (as amicus curiae in support of the respondent), the definition applies only to the award section of the statute. When used in the anti-retaliation provision, the word “whistleblower” carries its ordinary meaning. Respondent’s counsel also emphasized that the statutory definition does not say the report has to go to the Commission, but that it be made “in a manner established by rule or regulation by the Commission.” It makes sense for Congress to contemplate that the whistleblower award process be carried out in a particular way, to make it easy to track who is eligible for an award after an enforcement action is announced. But Congress did not need to limit the anti-retaliation section to a particular form of reporting to accomplish the core objective of the whistleblower legislation.
The employer/petitioner, however, asserted that the definition is clear and that its application to the anti-retaliation provision is consistent with the history, structure, and objectives of the whistleblower provisions. In this view, anyone who has reported to the SEC is protected from retaliation for any reason. The petitioner’s counsel said that subsection (iii) thus “reaches a situation in which an employee … reports to the SEC but is retaliated against because of an internal report or perhaps a report to another governmental entity.”
For his part, counsel for the government said that this reading is the most drastic anomaly resulting from “woodenly applying” the definition because it would “decouple retaliation liability from the act that causes the retaliation” and render employers liable for conduct that they were unaware of. And respondent’s counsel said that interpreting the statute as requiring no temporal or topical nexus between the SEC report and the retaliatory action sets up any SEC reporter as a “whistleblower for life.”
Justice Kagan agreed that this is an anomaly, and said that it is likely that in the process of adding subsection (iii) late in the game, Dodd-Frank’s drafters forgot about the definition and were using the term “whistleblower” according to its ordinary meaning. But the definition is there and it says it applies to the whole section. “It’s odd; it’s peculiar; it’s probably not what Congress meant. But what makes it the kind of thing where we can just say we’re going to ignore it?”
The government attorney directed the Justice to Lawson v. Suwanee Fruit (U.S. 1949), a worker’s compensation case in which the statute defined “injury” as an injury on the job. The statute also stated that the employer was not liable if the employee had a preexisting injury. The Court concluded that it would be anomalous to read the preexisting injury as also having to have occurred on the job.
Is “anomalous” the right standard, Justice Alito asked? Justice Ginsburg said she thought the standard was that the statutory definition must be followed unless it would lead to an “absurd” result. But the government’s counsel said that was not their position, and on a question from Justice Gorsuch, conceded that they were not arguing that the result of applying the statutory “whistleblower” definition would result in an absurdity. He did, however, stress how narrow the meaning of clause (iii) would be in that event.
Justice Gorsuch’s Chevron question. Justice Gorsuch, who prior to joining the Court was a sometimes outspoken critic of Chevron, focused some of his questioning of respondent’s counsel on that point. He characterized the employee as having a “plain-language problem,” which strategically had to be overcome by identifying an ambiguity in the statute. Then the Court could defer to the SEC’s rule under Chevron. The petitioner, however, identified procedural defects in the SEC’s rule, which went through the notice-and-comment period tracking the statutory “whistleblower” definition and only when the final rule was issued said that SEC reporting was not required.
“The agency acts without the benefit of the notice and comment and is unable to issue a reasoned decision-making, and then we’re supposed to defer to that to resolve this ambiguity?” Justice Gorsuch asked. “That just doesn’t quite hold together for me.” Respondent’s counsel pointed out that the SEC specifically asked for comments about whether to broaden or change the definition of whistleblower for anti-retaliation purposes, and that three people did comment that the SEC should make clear that internal whistleblowers are protected.
But Justice Gorsuch retorted that the SEC solicited comments on whether the protections should “apply broadly to any person who provides information to the Commission”—not just any person reporting internally. Justice Breyer also questioned whether this language really put people on notice that the SEC might expand the definition to pick up internal whistleblowers. The employee’s counsel said that the logical outgrowth test does not require that the agency ultimately endorse the exact proposal.
The case is No. 16-1276.