On June 19, 2107 the U.S. Supreme Court decided Digital Realty Trust v. Somers, holding that the Dodd-Frank Act’s prohibition on employer retaliation against whistleblowers extends only to individuals who have reported violations of the securities laws to the SEC.
Digital Realty Trust fired its vice president Paul Somers in 2014. Somers claimed that just before he was fired, he had reported suspected securities-law violations to senior management. But Somers did not alert the SEC to the suspected violations. Instead he sued Digital Realty Trust, seeking protection under the Dodd-Frank Act’s prohibition on whistleblower retaliation.
The Ninth Circuit held that Somers had pleaded a valid claim. It noted that Dodd-Frank defines a protected whistleblower as “any individual who provides information relating to a violation of the securities laws to the [Securities Exchange] Commission.” 15 US.C. § 78u-6(a)(6). But it also noted that Dodd-Frank prohibits retaliating against whistleblowers who make “disclosures that are required or protected under” a range of other federal laws, including the Sarbanes-Oxley Act. Because Sarbanes-Oxley additionally protects against retaliation for internal whistleblowing and for reports to other federal agencies (beyond the SEC), the Ninth Circuit held that Dodd-Frank whistleblower protections apply to people who make those reports as well.
The Supreme Court reversed, holding that Dodd-Frank “supplies an unequivocal answer” to the question of who is a whistleblower by defining the term to mean someone who makes a report “to the Commission.” The Court explained that Dodd-Frank protects those who both meet this definition of “who is eligible for protection” (which includes only people who have reported to the SEC) and who additionally engage in the kind of conduct that the statute shields from discrimination (which includes internal reporting protected by Sarbanes-Oxley). Thus, the Court held that Dodd-Frank protects a whistleblower who is discriminated against for reporting to the SEC, and protects “a whistleblower who reports misconduct both to the SEC and to another entity, but suffers retaliation because of the latter, non-SEC, disclosure,” but does not protect someone who reports only internally but not to the SEC.
The Court noted that this was consistent with Dodd-Frank’s purpose “to prompt reporting to the SEC,” whereas Sarbanes-Oxley was aimed more broadly at “disturb[ing] the corporate code of silence” that discouraged reporting fraudulent behavior either externally or internally. The Court rejected the argument that this would “shrink to insignificance the clause’s ban on retaliation,” noting “that approximately 80 percent of the whistleblowers who received awards in 2016 reported internally before reporting to the Commission,” and that employers would often know about only the internal reporting because “[t]he SEC is required to protect the identity of whistleblowers.”
Justice Ginsburg delivered the opinion of the Court. Justice Sotomayor filed a concurring opinion, joined by Justice Breyer. Justice Thomas concurred in part and in the judgment, joined by Justices Alito and Gorsuch.