In this case, Somers alleged that Digital Realty terminated his employment after he reported possible securities law violations to senior management in violation of Dodd-Frank’s antiretaliation provisions. The Court of Appeals for the Ninth Circuit had held that Somers was not required to report any alleged wrongdoing to the SEC prior to the termination of his employment to be protected under Dodd-Frank’s antiretaliation provisions. Similarly, prior to the Supreme Court decision, the SEC and the Justice Department both advocated for a broader interpretation of the term “whistleblower,” arguing that it should include any individuals who make internal reports of violations. In reversing the Ninth Circuit’s decision and rejecting the SEC’s and Justice Department’s interpretation, the U.S. Supreme Court unanimously concluded that the statutory text clearly defines a whistleblower as “any individual who provides ... information relating to a violation of the securities laws to the Commission.”1 The Court reasoned that the purpose of Dodd-Frank’s whistleblower protections is to assist the Commission’s enforcement efforts by “motivat[ing] people who know of securities law violations to tell the SEC,”2 and the Court’s holding “corroborated … Dodd-Frank’s purpose and design.”3 The Court also explained that Dodd-Frank protects “a whistleblower who reports misconduct to both the SEC and to another entity, but suffers retaliation because of the latter, non-SEC, disclosure.” However, as discussed above, Dodd-Frank does not protect the whistleblower who never made a report to the SEC.
Accordingly, the Court’s holding in this case eliminates companies’ exposure under Dodd-Frank’s whistleblower provisions with respect to employees who did not report to the SEC prior to any allegedly retaliatory adverse action. However, this ruling does not affect the whistleblower protections under the Sarbanes-Oxley Act for those who report certain misconduct internally at public companies.4 Indeed, the Court noted that Sarbanes-Oxley defines whistleblowers more broadly.
One potential outcome of this opinion is to incentivize employees to report potential securities laws violations directly to the SEC rather than pursuing internal options to report concerns as employment and whistleblower lawyers likely will advise. Accordingly, it is even more important for companies to encourage employees to report internally through strong compliance programs, consistent discipline and a culture of compliance and ethics where employees feel comfortable reporting internally in an environment free from retaliation. This is the most likely path to encourage loyal employees to choose internal reporting over the SEC’s whistleblower program. Additionally, employers who have not already done so should review existing employee confidentiality agreements and related policies to ensure that they are consistent with SEC guidance regarding an employee’s ability to disclose information to the SEC and other governmental agencies.
1 15 U.S.C. 78u-6(a)(6) (emphasis added).
2 Digital Realty Trust, Inc. v. Somers, No. 16-1276 at 11 (2018).
3 Id. at 3.
4 Id. at 12, 16; see 18 U. S. C. §1514A(a)(1).