Internal whistleblowing policies provide many advantages to companies hoping to learn of misconduct from within. Among the benefits provided: they allow the c-suite to take a proactive approach to investigating any potential misconduct, allow the company improved readiness when self-reporting violations, can help the company avoid damaging PR, can mitigate damage moving forward, and allow the company to earn potential cooperation credits when self-reporting. Companies hoping to take advantage of these benefits through strong internal whistleblowing policies have been dealt a bit of a blow by the Supreme Court’s ruling of Digital Realty Trust Vs Somers.

In 2014, Paul Somers, a high level manager for Digital Trust (a publicly traded REIT), was fired after he reported suspected financial wrongdoing to his senior managers. After his firing he filed a lawsuit against Digital Trust alleging retaliation and discrimination (based on his sexual preference). While the 9th circuit court of appeals initially sided with Mr. Somers, the Supreme court ruled in a unanimous decision, that internal whistleblowers (that solely report wrongdoing internally) do not qualify for anti-retaliation protections under Dodd Frank - effectively allowing the termination of employees that fail to report said misconduct to the SEC. In reaching the decision, Justice Ginsberg cited the plain and clear language of the protection, citing “a person must first provide…information relating to a violation of the securities laws to the commission”.

While this ruling has no bearing on whistleblower protections under SOX, it will likely create challenges for companies moving forward by instilling fear from within and dissuading employees from reporting wrongdoing internally.