Federal whistleblower laws, which extend to private sector employees, could be heading for a huge overhaul during the upcoming U.S. Supreme Court term.“Whistleblowers” and the anti-retaliation protections afforded them are hot topics in our political landscape, and Texas is no exception.
Texas already protects public sector whistleblowers from retaliation (e.g., suspensions, terminations, and adverse actions) for reporting good faith violations of law, but there is no comparable state statute for private sector employees. Texas employers and employees are subject to the federal statutes and will be affected by the Court’s decision.
Currently, U.S. Circuit Courts of Appeals disagree on whether individuals who disclose potential securities violations through internal reporting procedures instead of to the Securities and Exchange Commission (SEC), should be granted the status of “whistleblower.” In Digital Realty Trust v. Paul Somers, the Supreme Court will decide whether the Dodd-Frank anti-retaliation provisions that protect individuals who provide information relating to a violation of the security laws to the SEC, also apply to internal disclosures. In the case at hand, since Mr. Somers did not report the alleged violations to the SEC, and instead disclosed them to upper management, there is a question of whether such actions constitute “whistleblowing”, and therefore, whether his post-disclosure termination could be considered unlawful retaliation. The Ninth Circuit (where the case in question originated) held that internal reporting constitutes whistleblowing, citing the SEC’s own rules that affords a broader definition wherein disclosure to the SEC itself is not required. The Fifth Circuit, however, the Circuit in which Texas is located, has previously determined that whistleblowing, and the anti-retaliation protections such activity conveys, requires a disclosure to the SEC.
With the current legal standards for “whistleblower” differing across the Circuits, we should pay attention to the Supreme Court’s upcoming decision. There is the possibility that this ruling could expose Texas employers to federal anti-retaliation lawsuits by private sector employees who disclose potential securities violations internally as well as to the SEC directly. It is imperative that Texas employers and employees be apprised of these changing regulations, and know whether these anti-retaliation protections would apply in complicated reporting situations.
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