In a unanimous decision issued on February 21, 2018, the U.S. Supreme Court held that the anti-retaliation provisions of the 2010 Dodd-Frank law protect only those whistleblowers who report information to the Securities and Exchange Commission (SEC).

What happened

In Digital Realty Trust, Inc. v. Somers, No. 16-1276, plaintiff Somers alleged he was terminated by his employer, Digital Realty Trust, after he reported suspected violations of the federal securities laws to senior management. The trial court denied Digital Realty’s motion to dismiss. The defendant argued that Somers was not a whistleblower within the meaning of Dodd-Frank because he had not informed the SEC of his allegations prior to his termination. The Ninth Circuit affirmed, citing SEC regulations implementing Dodd-Frank that did not require whistleblowers to inform the SEC of their allegations before asserting anti-retaliation claims against their employer and according Chevron deference to the SEC’s interpretation of the statute. Indeed, SEC Rule 21F-2(b) broadly provides that, “for purposes of the anti-retaliation protections . . . [y]ou are a whistleblower if . . . [y]ou possess a reasonable belief that the information you are providing relates to a possible securities law violation,” and that information is provided to a federal regulatory or law enforcement agency, Congress or “a person with supervisory authority over the employee.”

But the Dodd-Frank Act defines “whistleblower” more narrowly as a person who provides “information relating to a violation of the securities laws to the Commission.” 15 U.S.C. § 78u-6(a)(6). In a much-anticipated decision, the Supreme Court reversed, holding that the plain language of Dodd-Frank’s definition of “whistleblower” limits those who seek the protection of the anti-retaliation provision to individuals who have reported directly to the SEC, and plaintiff does not meet that definition. Such whistleblowers are eligible for awards from the SEC and can sue their employers in federal court for retaliating against them for reporting violations to the SEC. §78u–6(b)–(g), §78u–6(h)(1)(B)(i), (iii)(I)(aa). The Court noted that these later two provisions support the plain reading of the statute, that Congress intended to encourage, protect and reward whistleblowers who report to the SEC. Because the statute was clear, the Court declined to accord Chevron deference to the contrary language of the SEC’s implementing regulation.

Why it matters

Corporations should hesitate before cheering this verdict because it now encourages potential whistleblowers to report alleged violations directly and immediately to the SEC, instead of attempting resolution through internal procedures. The incentives are clear and significant: A successful litigant receives Dodd-Frank anti-retaliation protections including double backpay. The good news? Fewer employees now satisfy the law because they may still be less likely to go directly to the SEC with their concerns.