Supreme Court to Hear Whistleblower Retaliation Case

November 27, 2017

The Supreme Court is set to hear on Nov. 28 a case that could determine whether corporate whistleblowers have the same job protections against retaliation when they report concerns about their employers’ misconduct only to their employers as they do when they report them to the Securities and Exchange Commission (SEC).

In Digital Realty Trust v. Somers, a real estate investment trust is challenging lower court rulings in a case originally brought by Paul Somers, a former vice president at the firm.

Somers claims he was fired from his job because he complained to senior management about actions by his supervisor that allegedly violated Sarbanes-Oxley securities laws. Months after he was fired, Somers sued under a whistleblower anti-retaliation provision in the Dodd-Frank Act.

However, Digital Realty argues that the ex-employee’s retaliation claim should not go forward because while he had complained internally he did not complain to the Securities and Exchange Commission. The company claims the Dodd-Frank Act’s definition of “whistleblower” requires reporting to the SEC and since Somers did not he is not entitled to the protections under Dodd-Frank. Digital also argues that the procedures used in adopting the Dodd-Frank rule were flawed and thus it should not apply.

While there is dispute over what the law is, an SEC regulation says whistleblowers are entitled to protection under Dodd-Frank regardless of whether they report wrongdoing to their employer or to the SEC. The SEC also offers higher awards to those reporting internally before going to the government.

“The arguments focus on the definition of ‘whistleblower’ because Dodd-Frank protects ‘whistleblowers’ against job retaliation,” said Sean McKessy, the founding chief of the SEC Office of the Whistleblower who now is partner at Phillips & Cohen LLP, which has represented whistleblowers in cases against Goldman Sachs, Northrup Grumman, Quest Diagnostics, Pfizer and GlaxoSmithKline among others.

McKessy said the Supreme Court’s determination of who qualifies as a whistleblower will decide whether Dodd-Frank’s protection against retaliation applies to those who go through internal channels to address their employers’ misconduct.

Federal appeals courts in the Ninth, Fifth and Second circuits have split on the question, thus opening the door for the Supreme Court to enter the picturt.

McKessy believes that if Somers loses, future whistleblowers will likely just go straight to the SEC rather than report them internally. “That is an outcome companies would come to regret as they would lose the opportunity to rectify possible securities violations before they become SEC enforcement actions,” he said.

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