The United States Supreme Court issued a unanimous decision today narrowing the definition of the term “whistleblower” in the context of securities law.
The decision in Digital Realty Trust, Inc. v. Somers will have a significant impact in that arena because it limits the scope of anti-retaliation measures meant to protect whistleblowers under the Dodd-Frank Act. The impact on other types of whistle blower cases, however, is likely to be minimal.
Too Late under Sarbanes-Oxley
Digital Realty Trust hired Paul Somers in 2010 but fired him in 2014, allegedly in retaliation for reporting to his supervisor and senior management that the company had eliminated internal controls in violation of the Sarbanes-Oxley Act of 2002. Seven months after the alleged issue, he reported the corporate misconduct internally within the company.
Justice Ginsburg, writing for the Court, observed that the Sarbanes-Oxley Act was passed in 2002 to protect employees from retaliation for having reported corporate misconduct. Such protection extends not only to those employees who report misconduct to a government authority but also to those who inform anyone within the company who has supervisory authority over them. However, Sarbanes-Oxley’s remedial scheme for retaliation against whistleblowers requires that claim be brought within a 180-day statute of limitations. Somers failed to meet this requirement.
Too Informal Under Dodd-Frank
The Dodd-Frank Act of 2010 was passed in response to the financial crisis of 2008 and was intended to “promote the financial stability of the United States by improving accountability and transparency in the financial system.” That law contains its own remedial scheme and defines “whistleblowers” to include only those persons who have reported misconduct to the Securities and Exchange Commission (SEC). As noted above, Somers never made such a report.
Since Somers did not qualify as a whistleblower under Sarbanes-Oxley for having missed the 180-day statute of limitations, his claims were limited to review under Dodd-Frank. The Supreme Court then concluded that Dodd-Frank’s definition the statute’s definition of “whistleblower” was “clear and conclusive” and that they needed to enforce the intent of Congress in writing the law as they did. Since Somers never reported anything to the SEC, he was not considered a protected whistleblower under that law and his claim therefore was invalid.
Bottom Line
For those employers outside of the securities industry, this case is not likely to have much impact. Far more employers must still operate under the more expansive reach of Sarbanes-Oxley which as Justice Ginsburg wrote “sought to disturb the corporate code of silence that discouraged employees from reporting fraudulent behavior not only to the proper authorities, such as the FBI and the SEC, but even internally.”