A federal appeals court on Thursday ruled that corporate whistleblowers who report possible wrongdoing internally to their company before alerting securities regulators are protected by retaliation provisions of the 2010 Dodd-Frank financial reform law.

The 2-1 ruling by the Second U.S. Circuit Court of Appeals reversed a lower court and marked a victory for the U.S. Securities and Exchange Commission, which pushed to expand the scope of protections. The decision was a setback for companies that argued that employees shouldn't...