On June 26, 2017, the United States Supreme Court greenlit an appeal that will address the definition of a “whistleblower” under the U.S. Dodd-Frank Act. The top U.S. court granted certiorari in Somers v. Digital Realty Trust Inc., a case that involved the question of whether a former executive of Digital Realty could invoke the anti-retaliation protections in Dodd-Frank even though he had never reported directly to the Securities and Exchange Commission. The Supreme Court’s decision is expected to settle an emerging rift in the U.S. case law on this issue, and should bring additional clarity to a question that has recently gained importance in Canada: who qualifies as a whistleblower?
Paul Somers was employed as a Vice-President of Digital Realty from 2010 to 2014. He made several reports to senior management regarding possible securities law violations by the company, and was thereafter promptly fired. Somers claimed that he was not able to report his concerns to the SEC before Digital Realty fired him. He subsequently sued the company, alleging violations of various state and federal laws, including the anti-retaliation provisions created by the Dodd-Frank Act. Digital Realty sought to dismiss Somers’ claim on the basis that because he only reported the possible violations internally, and not to the SEC, Somers was not a “whistleblower” within the meaning of the statute, and was therefore not entitled to any protections.
Who is a whistleblower?
The issue has arisen because the Dodd-Frank Act describes “whistleblowers” as employees who report “to the Commission” (that is, to the SEC). This clear language led the Fifth Circuit in its 2013 decision in Asadi v. G.E. Energy (USA), LLC to conclude that Dodd-Frank’s anti-retaliation provisions were strictly limited to whistleblowers who reported to the SEC before they suffer retaliation, and that no protections were available if an employer were to terminate an employee before such reporting had been made.
In the recent Somers decision, the Ninth Circuit rejected this strict interpretation and recognized that there is now “intercircuit disagreement” on the issue. The Court in Somers ruled that adopting the approach followed by the Fifth Circuit in Asadi would create an “absurdity” and would be “illogical”. A key part of the Court’s decision is as follows:
Employees are not likely to report in both ways, but are far more likely to choose reporting either to the SEC or reporting internally. … Reporting to the SEC brings a higher likelihood of a problem being addressed, along with an increased risk of employer retaliation, whereas internal reporting may be less efficient but safer. … As we have seen, Sarbanes-Oxley and the Exchange Act prohibit potential whistleblowers—auditors and lawyers—from reporting to the SEC until after they have reported internally. … The anti-retaliation provision would do nothing to protect these employees from immediate retaliation in response to their initial internal report. [Emphasis added.]
Given the clear tension between interpretations of the Ninth Circuit in Somers and the Fifth Circuit in Asadi, the Supreme Court’s grant of certiorari in Somers was anticipated, and its decision will bring welcome clarity to this issue in the United States.
The Canadian context
In Ontario, section 121.5(1) of the Securities Act makes very clear that reprisals against employees are prohibited whether the employee reports possible misconduct to the OSC or other law enforcement agencies, or directly to the employer. In that regard, the U.S. Supreme Court’s Somers decision is not anticipated to have a direct impact on our understanding of the anti-retaliation protections that were recently adopted in this province. Nevertheless, given that Ontario’s whistleblower protection and award regime was born less than a year ago (with no awards yet reported), any pronouncements about whistleblower protections from the highest court in the United States will be read closely here in Canada.