U.S. Supreme Court Decides the Scope of Dodd-Frank’s Whistleblower Protections

In a unanimous opinion issued earlier today, the Supreme Court narrowed the scope of the anti-retaliation protections of the Dodd-Frank Act, holding that the protections extend only to employees who report alleged misconduct to the SEC and not to employees who report misconduct solely to management. See Digital Realty Trust v. Somers, 583 U.S. ____ (2018) at 2. The decision resolves a split between the Second and Ninth Circuits, which held that whistleblower protections apply to internal whistleblowers, and the Fifth Circuit, which limited whistleblower protections to employees who have made reports to the SEC. See Somers v. Digital Realty Trust, No. 15-17352, 2017 WL 908245 (9th Cir. March 8, 2017); Berman v NEO@Ogilvy LLC, 801 F.3d 145, 151, 155 (2d Cir. 2015); Asadi v. GE Energy (USA), LLC, 720 F.3d 620 (5th Cir. 2013). The Court’s decision is also a rejection of the SEC’s long-standing position that Dodd-Frank protects internal whistleblowers.

In reaching its decision, the Court determined that the definition of “whistleblower” under Dodd-Frank “supplies an unequivocal answer” to the question of who is protected: “A ‘whistleblower’ is ‘any individual who provides . . . information relating to a violation of the securities laws to the Commission.’” Sommers, 583 U.S. at 9 (emphasis in original). The Court further concluded that this reading of Dodd-Frank is consistent with the statute’s purpose. The “core objective” of Dodd-Frank’s whistleblower program is “to motivate people who know of securities law violations to tell the SEC.” Id. at 11. Thus, the Act’s “text and purpose leave no doubt that the term ‘whistleblower’” in the anti-retaliation provision “carries the meaning set forth in the section’s definitional provision.” Id. at 12.

While today’s decision limits Dodd-Frank protections for whistleblowers, companies still must be cautious in their treatment of employees who report alleged misconduct internally. Employees who report misconduct internally are still protected from retaliation under SOX. Moreover, the Court’s decision makes clear that even if a company is unaware that an employee has reported to the SEC at the time it takes an adverse employment action against him or her (or is not motivated by the disclosure), the company may still be found to have violated Dodd-Frank whistleblower protections. Id. at 14. Accordingly, companies must continue to maintain robust anti-retaliation policies. Finally, companies should be prepared that the Court’s decision likely provides incentive to whistleblowers who might otherwise be inclined merely to report internally to report to the SEC.