In Digital Realty Trust Inc. v. Somers, 2018 WL 987345 (February 21, 2018), the U.S. Supreme Court adopted a narrow definition of “whistleblower” under the Dodd-Frank Act (Dodd-Frank), holding that an employee must first report alleged violations to the Securities and Exchange Commission to come within the act’s anti-retaliation protections.

Enacted after the 2008 financial crisis, Dodd-Frank affords “whistleblowers” certain monetary incentives for reporting alleged violations to the SEC, while protecting them from retaliation for making such reports as well as other reporting activity. Dodd-Frank defines “whistleblower” as someone “who provides . . . information relating to a violation of the securities laws to the Commission.”

In recent years, the SEC adopted a broad interpretation of that definition. An individual could be covered under the SEC’s interpretation even if he or she never reported the violation to the SEC but, for example, reported to a supervisor instead. Two federal courts of appeals had adopted this view, as well.

But the Supreme Court concluded otherwise. According to the Supreme Court, the definition of “whistleblower” means what it says: to be a “whistleblower,” an individual must report a violation “to the Commission.”

“Courts are not at liberty to dispense with the condition – tell the SEC – Congress imposed,” the Court ruled. By hewing to the statutory text, the Supreme Court excluded individuals who report violations internally from the scope of Dodd-Frank’s protections.

The Supreme Court’s decision in Digital Realty Trust will have significant impact for employers facing financial whistleblower claims. Individuals typically raise such claims under both the Sarbanes-Oxley Act and Dodd-Frank, the latter of which has been viewed as more employee-friendly. Unlike Sarbanes-Oxley, Dodd-Frank does not contain an administrative exhaustion requirement or require individuals to raise claims within 180 days of the alleged retaliation. Instead, Dodd-Frank permits employees to go directly to court and has a six-year statute of limitations. Dodd-Frank also allows prevailing plaintiffs to recover double back pay with interest, while Sarbanes-Oxley limits recovery to actual back pay with interest.

After the Supreme Court’s decision in Digital Realty Trust, however, the more favorable provisions in Dodd-Frank will no longer be available to employees unless they first report the alleged violation to the SEC.