Supreme Court Narrows Definition of Whistleblower
In a February 2018 decision called Digital Realty Trust v. Somers, the U.S. Supreme Court narrowed the definition of the term "whistleblower.” This decision will significantly limit the scope of anti-retaliation protections under the Dodd-Frank Act. That law, a 2010 package of Wall Street reforms passed after the 2008 financial crisis, was intended to protect employees who make complaints about securities violations.
In 2014, the vice president of a real estate investment firm became concerned about the companyʼs compliance with securities rules - including the concealment of seven million dollars in cost overruns. The executive alerted senior management and was promptly fired. He then sued the company, arguing that the Dodd-Frank Act whistleblower protections made him immune from retaliation. The company disagreed and argued that Dodd-Frank defines a “whistleblower” as someone who reports misdeeds to the SEC, not just to internal compliance departments.
The Supreme Court unanimously sided with the company. All nine justices agreed that if the executive had wanted his good deed to go unpunished, he had to do more than complain within the company.
Employees who only report internally are now excluded from Dodd-Frank protections. Regardless of whether they have complained internally, employees must take their securities law allegations to the SEC to receive Dodd-Frank’s anti-retaliation protection.
Companies should be aware of this change in the law, as it may incentivize more employees to file complaints with the SEC rather than with internal compliance departments.
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