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Supreme Court Rules on Whistleblower Reporting to SEC

Supreme Court Rules on Whistleblower Reporting to SEC

The U.S. Supreme Court unanimously held in Digital Realty Trust, Inc. v. Somers that whistleblowers must report alleged misconduct to the Securities and Exchange Commission in order to benefit from Dodd-Frank's anti-retaliation protections. Employees who report only internally to the company are not protected by the Dodd-Frank anti-retaliation provisions. The decision effectively mandates that whistleblowers report to the SEC if they want to take full advantage of the anti-retaliation protections.

Two statutes—Dodd-Frank and Sarbanes-Oxley—govern the treatment of whistleblowers who report violations of the securities laws. Each statute addresses standards for triggering anti-retaliation protection. Under Sarbanes-Oxley, a whistleblower may provide information about securities law violations to a federal regulator, law enforcement, or a workplace supervisor. Under Dodd-Frank, a whistleblower provides information about a violation of the securities laws to the SEC. Dodd-Frank provides more favorable terms for whistleblowers than Sarbanes-Oxley through: (i) direct financial incentives (a bounty); and (ii) more generous protections for employees alleging retaliation, such as immediate access to federal court, a longer statute of limitations, and the opportunity to recover double backpay.

In this case, the Court resolved a circuit split and held that a whistleblower who makes an internal disclosure protected under Sarbanes-Oxley can avail herself of the more favorable protections of Dodd-Frank only if she also reports to the SEC. The Supreme Court's decision thus offers strong incentives to report to the SEC, regardless of whether employees have reported their concerns to their employer.

In light of this ruling, companies may see more frequent and earlier reporting by employees to the SEC. To maximize the opportunity to address concerns internally, companies need a robust internal reporting system demonstrably responsive to employee concerns. Company legal and compliance personnel, along with human resources professionals, must monitor and promptly follow up on tips or complaints, and potentially valid complaints must be quickly investigated and elevated to the appropriate board committee, where necessary. And above all, with whistleblowers further incentivized to report concerns directly to the SEC, companies should demonstrate a strong commitment to ensuring that whistleblowers are not subject to retaliation.

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Washington
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Boston
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dbergers@jonesday.com

Henry Klehm III
New York
+1.212.326.3706
hklehm@jonesday.com

Terri L. Chase
New York
+1.212.326.8386
tlchase@jonesday.com

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