On February 21, the U.S. Supreme Court issued its opinion in the closely watched whistleblower case Digital Realty Trust, Inc. v Somers. In a unanimous ruling, the Court stated that whistleblowers must report any wrongdoing to the SEC, not just their companies, if they intend to seek whistleblower protection under Dodd-Frank.
The case involves a former employee of Digital Realty Trust who was allegedly fired after reporting accounting irregularities internally. The employee argued he was protected by Dodd-Frank as a whistleblower, although he did not report the wrongdoing to the SEC, only internally.
The SEC had previously interpreted Dodd-Frank to mean that whistleblower protections applied to employees who made internal reports, and not just those who reported directly to the SEC. However, under the Supreme Court’s ruling, only those employees who report to the SEC are protected.
It is important to note that other whistleblower protections exist; therefore, companies should consider several factors when dealing with whistleblower reporting.
- First and foremost, all claims should be taken seriously and thoroughly investigated. This is critical and will be looked at closely if a regulatory agency becomes involved and launches an internal investigation.
- Second, because other protections exist outside of Dodd-Frank, when a company fires, demotes or takes negative action against an employee for reporting wrongdoing, it is opening itself up to potential legal action. This applies whether the employee reports to a regulatory agency such as the SEC, or just reports internally.
While this ruling does clarify and narrow the scope of whistleblower protections under Dodd-Frank, companies should still exercise caution when dealing with internal reporting. This means having firm policies and procedures in place that govern internal investigations and protecting those who come forward to report wrongdoing.