On February 21, 2018, the Supreme Court of the United States issued an opinion unanimously holding that an employee did not qualify as a whistleblower under federal rules because he did not report any violations to the Securities and Exchange Commission (SEC) prior to the termination of his employment.
The plaintiff in the case, Paul Somers, sued his former employer, Digital Realty Trust, for violating federal whistleblower protections. Somers specifically alleged that Digital Realty Trust fired him in retaliation for internally reporting his supervisor for hiding major cost overruns, eliminating internal controls, and making unsubstantiated payments to friends. Federal law such as the Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) and the Sarbanes-Oxley Act, as well as SEC regulations, provide anti-retaliation protections to corporate employees who become whistleblowers and report potential fraud or violations of securities law. Such anti-retaliation protections have been applied only to whistleblowers who report allegations to the government, but Somers argued that such protections should also extend to internal whistleblowers.
Below, the District Court denied Digital Realty Trust’s motion to dismiss and the Ninth Circuit Court of Appeals affirmed that denial, holding that federal rules “should be read to provide protections to those who report internally as well as to those who report to the SEC.”
The Supreme Court reversed, holding that Dodd-Frank required Somers to externally report the allegations to the SEC in order to qualify for whistleblower protection. Writing for a unanimous Court, Justice Ginsberg explained that, under Dodd-Frank, a “whistleblower” is defined as “any individual who provides … information relating to a violation of the securities laws to the SEC,” and that “Somers did not provide information to the SEC before his termination, so he did not qualify as a ‘whistleblower’ at the time of the alleged retaliation. He is therefore ineligible to seek relief under Dodd-Frank.” Thus, while Dodd-Frank unambiguously provides protection to employees who report allegations to the SEC, such protection is not afforded to employees who only report such allegations internally within a corporation..
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