Supreme Court Limits Protections for Corporate Whistleblowers

Author: David B. Weisenfeld, XpertHR Legal Editor

February 23, 2018

An employee must provide information about securities law violations to the Securities and Exchange Commission (SEC) in order to be protected from retaliation, the US Supreme Court has found. The unanimous ruling in Digital Realty Trust, Inc. v. Somers is a significant setback for corporate whistleblowers that could limit their job protections.

The federal appellate courts had been divided over whether the anti-retaliation provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) applies to internal whistleblowers. But in siding with the employer, the Supreme Court made clear that the whistleblower must first report wrongdoing to the SEC for Dodd-Frank's anti-retaliation protection to apply.

A vice president at Digital Realty, Paul Somers, claimed that the company terminated him shortly after he reported suspected securities law violations by a supervisor to senior management. Writing for the Court, Justice Ruth Bader Ginsburg observed, "Although nothing impeded him from alerting the SEC prior to his termination, he did not do so." Therefore, Somers did not qualify as a whistleblower.

The Court explained that the Sarbanes-Oxley Act of 2002 applies to all employees who report misconduct to the SEC, any other federal agency, Congress or an internal supervisor. But Dodd-Frank, enacted eight years later in the wake of the Wall Street financial crisis, defines whistleblower to mean a person who provides "information relating to a violation of the securities laws to the [SEC]."

Somers and the Solicitor General's office, which sided with him in the case, argued that applying this limited whistleblower definition would allow misconduct to go unpunished and leave professionals vulnerable to retaliation for complying with their internal reporting obligations. The 9th Circuit Court of Appeals had sided with Somers.

But in reversing that ruling, the Supreme Court noted that the core objective of Dodd-Frank's whistleblower program is to aid the Commission's enforcement efforts by "motivating people who know of securities law violations to tell the SEC."

The Court also pointed out that its reading of Dodd-Frank shields employees from retaliation as soon as they provide relevant information to the SEC to aid its enforcement efforts.

The US Chamber of Commerce had filed a brief in support of Digital Realty, arguing that if Dodd-Frank was interpreted to also cover internal whistleblowing it would lead to a "proliferation of whistleblower litigation."