Whistleblowers lose a shield, but so do employers

SEC headquarters in Washington. Credit Diego M. Radzinschi

With this ruling, the court overturned the Ninth Circuit court's holding that had found in favor of Somers.

The Supreme Court sharply limited the legal protections for corporate whistleblowers on Wednesday, ruling they are not shielded from being fired under a federal law unless they have reported a potential fraud to the Securities and Exchange Commission.

The U.S. Supreme Court ruled unanimously on February 21 that whistleblower protections from retaliation under the 2010 Dodd-Frank legislation apply only to employees that approach regulators. Further, the Court stated that the objective of the Dodd-Frank Act was to aid the SEC's enforcement efforts by motivating people who know of securities law violations to tell the SEC.

On the basis of those regulations, a federal judge and the 9th U.S. Circuit Court of Appeals said Somers could proceed with this suit.

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And while Dodd-Frank provides whistleblowers with monetary rewards when they provide actionable information about financial fraud, Ginsburg said Congress recognized that might not be enough of an incentive to encourage employees who are fearful of employer retaliation to come forward to report that information to the government. (The second part is whether the agency's statutory interpretation is reasonable.) In Digital Realty, the court's Chevron analysis ended nearly as soon as it began. In the lower court, Digital Realty argued the case should be dismissed, given Somers' failure to report any alleged violations to the SEC.

The case centered on Paul Somers, a former employee for Digital Realty Trust Inc. who was sacked after he reported alleged securities violations to his senior management, but not the SEC.

"We find the statute's definition of "whistleblower" clear and conclusive". Its "unambiguous whistleblower definition, in short, precludes the commission from more expansively interpreting that term". His Supreme Court counsel, Daniel Geyser of Stris & Mayer, declined to comment. "Somers.pdf" target="_blank">a statement submitted to the court, that a finding otherwise could drastically expand the number of employees eligible to pursue the law's remedies and the time period in which they can sue for retaliation. Whistleblowers receive more powerful protection under Dodd-Frank than under Sarbanes-Oxley, including a longer statute of limitations, fewer administrative hurdles and higher potential recovery.

That's a mixed blessing for employers, said Sean McKessy of Phillips & Cohen, founding director of the former SEC Office of the Whistleblower. "Now we will tailor our advice to whistleblowers to take the Supreme Court decision into account, so as to avoid the risk of losing the right to be protected from retaliation".

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