SCOTUS Decision Digital Realty-Somers Whistleblower Protections

Supreme Court Action and Whistleblower Protections  

Concerning Whistleblower Protections – 0n February 21, 2018, the Supreme Court held in Digital Realty Trust, Inc. v. Somers that to sue under the anti-retaliation provisions of the Dodd-Frank Act, a person must first report a violation of the securities laws to the Securities and Exchange Commission (SEC). In reversing a prior Ninth Circuit decision, the Supreme Court ruled that employees who report alleged violations only internally are not protected whistleblowers under Dodd-Frank but are protected only if they have reported to the SEC.

The Dodd-Frank Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) strengthened SEC enforcement by providing monetary awards and anti-retaliation protections to “whistleblowers” who report on securities law violations. The statute unambiguously provides monetary awards to people who report to the SEC. However, the issue in Digital Realty was the extent of anti-retaliation protections that restrict employers from firing, demoting, harassing or otherwise discriminating against a “whistleblower.”

The Dodd-Frank Act defines a “whistleblower” as someone who provides “information relating to a violation of the securities laws to the Commission.” While that definition seemingly only protects those who report to the SEC, the Dodd-Frank Act separately provides protection for whistleblowers who make disclosures consistent with other federal laws that do not require disclosure to the SEC, including the Sarbanes-Oxley Act.

Digital Realty Trust, Inc. v. Somers
Paul Somers worked as a vice president for Digital Realty from 2010 until he was terminated in April 2014. While employed with Digital Realty, Somers claims to have reported possible securities law violations to senior management, and alleges he was fired shortly after making these internal reports. In November 2014, Somers filed suit against his Digital Realty, claiming that his former employer retaliated against him in violation of the Dodd-Frank Act by firing him for making an internal report protected by the Sarbanes-Oxley Act.

Digital Realty immediately asked the court to dismiss the case, arguing that Somers was not entitled to whistleblower protection because he did not meet the statutory definition under the Dodd-Frank Act. By his own account, Somers admitted that he did not make any reports to the SEC.

Lower Court Decisions

whistleblower protections

A California federal court and the 9th Circuit Court of Appeals both refused to dismiss the Somers’ case. The lower courts could not find a clear way to reconcile the Act’s narrow definition of whistleblower with the broad protections of its anti-retaliation provision. Therefore, the lower courts deferred to the SEC’s interpretation of the Act which extends protection to individuals who make internal reports. Recognizing that certain provisions of the Sarbanes-Oxley Act require internal reporting, the 9th Circuit reasoned that a strict application of the Dodd-Frank Act’s whistleblower definition would narrow the anti-retaliation provisions of the Act “to the point of absurdity,” leaving entire categories of employees, such as in-house counsel and auditors, with little protection under the Act.

In short, the 9th Circuit elevated Congressional intent and regulatory interpretation over the plain language of the Act. This created a split in the circuits, as the 5th Circuit Court of Appeals had strictly applied the Act’s definition of whistleblower in an earlier case. The Supreme Court accepted the case to resolve the dispute and determine who Congress intended to protect when it defined “whistleblower” in the Dodd-Frank Act.

The Supreme Court ruled 9-0 in favor of Digital Realty. In the majority opinion authored by Justice Ginsburg, the Supreme Court held that an individual must report securities law violations to the SEC to be protected as a whistleblower under the Dodd-Frank Act. The Court found that the Dodd-Frank Act unambiguously defines a “whistleblower” as someone who provides information regarding securities law violations to the SEC. Because the statute’s definition limits those who are entitled to protection to those who report to the SEC, a person who reports only internally is not protected as a whistleblower regardless of the conduct they engage in, such as reporting misconduct.
The Court found that, by enacting the whistleblower provisions of Dodd-Frank, “Congress undertook to improve SEC enforcement and facilitate the Commission’s ‘recovery of money for victims of financial fraud.’” The Court held that by requiring the provision of information to the SEC, the narrower whistleblower definition serves the goal of assisting SEC enforcement.

The Supreme Court’s decision in Digital Realty Trust, Inc. v. Somers should remind all employers to evaluate anti-retaliation policies and to take all employee reports seriously. While a zero-tolerance policy is the most effective practice, employers should ensure all employees, supervisors and managers are aware of such policies. If you feel you have been a victim of retaliation, or have questions about any of California’s employment related laws, feel free to contact leading California employment lawyers at Kingsley & Kingsley. Call toll-free at (888) 500-8469 or contact us via email.

Kingsley & Kingsley

16133 Ventura Boulevard, Suite 1200
Encino, California 91436
Phone: 888-500-8469
Local: 818-990-8300 (Los Angeles Co.)

automobile service advisor overtime exemption

Supreme Court to Resolve Circuit Split on Automobile Dealer Overtime Exemption

On September 28, 2017, the U.S. Supreme Court again granted certiorari to resolve a circuit split regarding whether “service advisors” at automobile dealerships are exempt from receiving overtime under an exemption for “salesmen, partsmen, and mechanics” under the Fair Labor Standards Act (FLSA). The case is Encino Motorcars, LLC v. Navarro, No. 16-1362 (U.S. Sep. 28, 2017).

Historically, “service advisors” were included in the “salesperson” exemption. Beginning in 1973 with a federal appellate decision in Brennan v. Deel Motors, Inc., and continuing as recently as 2013 with the Montana Supreme Court’s decision in Thompson v. J.C. Billion, Inc., courts have uniformly held that Service Advisors are exempt from overtime under Section 13(b)(10) of FLSA.

Over the years, car dealerships have faced uncertainty since the U.S. Department of Labor’s (USDOL) track record in this area has been inconsistent. At times, the Department of Labor has said that service advisors could qualify for the exemption; at other times, it has said that they could not. At one point, the USDOL issued an interpretive provision where it took the position that service advisors did not fall within the exemption; however, several courts nevertheless applied the exemption and the USDOL said it would no longer dispute the issue.

The USDOL reversed course in April 2011 by deleting the controlling regulation, stating that the change reflected its view that the exemption should be limited “to salesmen who sell vehicles and partsmen and mechanics who service vehicles,” and that service advisors did not fall within this description.

The 9th Circuit Court of Appeals deferred to USDOL’s most recent interpretation of the exemption and became the first court to hold that service advisors are not exempt from overtime pursuant to the “salesperson” exemption.

Supreme Court Decision – June 2016

The Supreme Court heard and issued a ruling in this case in June 2016. The Court did not answer the question of whether service advisers are exempt from overtime. Instead, the Court held that the USDOL regulations that the Ninth Circuit Court of Appeals relied upon to hold that service advisors are not exempt were invalid. This decision by the Supreme Court is similar to decisions reached by the Fourth and Fifth Circuits. Rather than decide the matter, the Court remanded the case back to the Court of Appeals for reconsideration. On remand, the Court of Appeals reconsidered the issue without reference to the views of the Department of Labor. Looking solely at the language and intent of the statute, the Court of Appeals once again found that service advisors do not fall within the meaning of the terms “salesman, partsman, or mechanic” as used in the FLSA.

automobile service advisor overtime exemptionConclusion

Once again, the Ninth Circuit’s position on the exemption is at odds with rulings in the Fourth and Fifth Circuits. This time around, the Supreme Court is expected to resolve the underlying issue of whether the service advisors are entitled to overtime, providing needed certainty to employers. Until the Supreme Court definitively sorts this issue out, auto dealers who wish to classify their service writers or service advisors as exempt from overtime may wish to focus on the FLSA Section 7(i) exemption for employees of retail or service establishments who are paid primarily on a commission basis.

If you have questions about California wage and hour laws or Fair Labor Standards Act, don’t hesitate to contact leading California employment lawyers from Kingsley & Kingsley to take advantage of a free initial consultation. To discuss your situation call us toll-free at (888) 500-8469 or click here to contact us regarding your case.

Kingsley & Kingsley

16133 Ventura Boulevard, Suite 1200
Encino, California 91436
Phone: 888-500-8469
Local: 818-990-8300 (Los Angeles Co.)

scotus erisa exemption

Supreme Court Approves ERISA Exemption For Church-Affiliated Hospitals

ERISA – Employee Retirement Income Security Act  scotus erisa exemption

ERISA is a federal statute that covers all employee group policies, regardless of whether they are long term or short term disability, long term care, health, and life insurance policies, with certain exceptions such as if the employer is a governmental agency, charity or religious organization. ERISA, established in 1974, obligates private employers to offer pension plans that adhere to rules to ensure plan solvency and protect the employees. Since 1980 church plans have been exempt from these regulations.

On Monday, the U.S. Supreme Court ruled that church-affiliated hospital systems do not have to comply with ERISA. In other words, the nation’s highest court extended ERISA’s religious exemption provision to benefit plans maintained by church affiliates, regardless of whether an actual church established the plan. The Court’s decision is welcomed news to hospital systems across the country looking to take advantage of the exemption and avoid certain elements of pension plan compliance. Continue reading

scotus overtime pay

SCOTUS Will Not Hear Case Dealing With Overtime Pay for Public Employees

Overtime Pay 

On May 15, 2017, the Supreme Court of the United States (SCOTUS) rejected the City of San Gabriel, California’s attempt to appeal a Ninth Circuit Court of Appeal’s ruling. This case started when the City of Gabriel questioned the expansive interpretation of what employers must include as “wages” when establishing the regular rate of pay to calculate overtime under the Fair Labor Standards Act (FLSA). Specifically, the Court was to decide (1) whether the Fair Labor Standards Act, Section 207(e)(2), allows employers, when calculating the overtime rate, to exclude payments to an employee that are entirely unrelated to “his hours of employment,” as other courts of appeals (third, sixth and tenth circuits) have held in conflict with the U.S. Court of Appeals for the 9th Circuit; and (2) whether the 9th Circuit’s outlier “willfulness” standard, triggered whenever a non-compliant employer “was on notice of its FLSA requirements” but failed to investigate further, contravenes this court’s decision in McLaughlin v. Richland Shoe Company

The Path to the Supreme Court

The City of San Gabriel provides a flexible benefits plan to its employees under which they receive a designated amount of money to be used to purchase medical, vision, and dental benefits. Employees can decline to purchase medical benefits and then receive the balance of their unspent dollars in the form of a “cash-in-lieu” payment. Based on Section 207(e)(2) of the FLSA, the city did not factor such “cash-in-lieu” payments into its overtime pay calculations. This Section of the FLSA authorizes employers to exclude from the regular rate “any payments made for occasional periods when no work is performed due to vacation, holiday, illness, failure of the employer to provide sufficient work, or other similar cause; reasonable payments for traveling expenses or other expenses incurred by an employee in the furtherance of the employer’s interests and properly reimbursable by the employer; and other similar payments to an employee that are not made as compensation for his or her hours of employment.”

scotus overtime pay

A group of police officers sued the city, alleging their overtime pay had been reduced because the city didn’t count their “in-lieu” payment for benefits in its calculation of their regular rate of pay, which, in turn, reduced their overtime pay. The city employees claimed this practice amounted to a willful violation of the FLSA. The city won summary judgment in July of 2014, in a ruling holding that the city wasn’t required to include the total value of the police officers’ “in lieu” payments in its calculation of their regular rate of pay.

However, on appeal, the Ninth Circuit ruled on both issues:

  1. First, even though the “in lieu” amount wasn’t a payment based on the number of hours worked, it was nonetheless compensation that must be included in the regular rate of pay for purposes of calculating overtime. According to the Court of Appeals, Section 207(e)(2), like other provisions in the FLSA, must be narrowly construed in the employees’ favor. 
  2. Second, San Gabriel failed to show that it attempted to comply with the FLSA in good faith and therefore reversed the district court’s denial of liquidated (double) damages. The court of appeals found the city’s compliance efforts and analysis of whether these payments should be considered “wages” for the purposes of calculating the regular rate of pay to be “paltry.” The Court stated that an employer that “fail[s] to take the steps necessary to ensure its practices complied with [the FLSA]” and that “offers no evidence to show that it actively endeavored to ensure such compliance” fails to avoid a finding of willfulness under the statute.


The City of San Gabriel filed a petition for certiorari, requesting the Supreme Court to clarify conflicting interpretations of Section 207(e)(2) in the federal courts of appeal and arguing, among other things, that the Ninth Circuit misstated the “willfulness” standard under the FLSA. On May 15, the Supreme Court declined the petition in City of San Gabriel v. Flores, No. 16-911, allowing the Ninth Circuit decision to stand.

California Employment Law

California employers who provide “cash-in-lieu” payments should review their benefits plans to determine if they should include such payments in their regular rate of pay and calculation of overtime pay. Employers and employees alike should contact leading employment lawyers at Kingsley & Kingsley with any questions concerning California’s wage and hour laws. Call and speak to an experienced California lawyer toll-free at (888) 500-8469 or click here to contact us via email.

Kingsley & Kingsley

16133 Ventura Boulevard, Suite 1200
Encino, California 91436
Phone: 888-500-8469
Local: 818-990-8300 (Los Angeles Co.)

U.S. Supreme Court to Decide Appellate Court Split Class Action Waiver

U.S. Supreme Court Grants Certiorari in Three Class Arbitration Waiver Cases class action waiver

On January 13, 2017, the United States Supreme Court consolidated and granted petitions for writ of certiorari in Epic Systems Corp. v. Lewis, Ernst & Young v. Morris and NLRB v. Murphy Oil USA Inc. The nation’s highest court will hear argument on whether arbitration provisions in employment agreements which waive class actions are a violation of the National Labor Relations Act (NLRA). Stated differently, the question is whether employers can utilize arbitration agreements within employment contracts that require their employees to resolve disputes individually instead of collectively via a class action.

The Court’s decision in this case aims to resolve a significant split among federal appellate courts. The Second, Fifth and Eighth circuit courts have held that the Federal Arbitration Act (FAA) requires the enforcement of class action waivers in employment arbitration agreements. The Seventh and the Ninth circuits have reached the opposite conclusion, holding that such waivers are unenforceable.

Seventh Circuit

In Epic Systems Corp. v. Lewis (USSC 16-285), the Seventh Circuit held a provision of an employment agreement mandating that wage-and-hour claims could be brought only through individual arbitration and that employees waived collective action was prohibited under Section 7 of the NLRA. Epic Systems, a Wisconsin-based health-care software company, required certain groups of employees to agree to bring any wage-and-hour claims against the company only through individual arbitration. The agreement did not permit collective arbitration or collective action in any other forum.  Continue reading

SCOTUS Criticizes Labor Department for Arbitrary Overtime Regulations

overtime regulationsOvertime Regulations

The Supreme Court ruled on June 20, 2016, that the U.S. Department of Labor’s (DOL) 2011 regulation removing a long-standing exemption to overtime pay for auto service advisors was “procedurally defective.” In a 6-2 opinion, the Court stated the DOL failed to follow the correct procedures in issuing a regulation by not giving adequate reasons for its decision.


In Encino Motorcars, LLC v. Navarro, No. 15-415, the plaintiffs were “service advisors” who worked at a Los Angeles-area automobile dealership. The service advisors in this case performed tasks similar to Continue reading