Supreme Court Refuses to Broaden Whistleblower Protection

WASHINGTON (Reuters) -

The Supreme Court on Wednesday refused to broaden protection for corporate insiders who call out misconduct, throwing out a lawsuit brought against a real estate trust by a former employee who had reported alleged wrongdoing internally but not to the Securities and Exchange Commission.

The justices ruled 9-0 in favor of Digital Realty Trust Inc , deciding that the Dodd-Frank Act, a 2010 Wall Street reform law, protects whistleblowers from retaliation only if they have brought their claims of securities law violations directly to the SEC.

The case required the justices to decide who should be considered a whistleblower deserving of protection from corporate retaliation under federal law. The Dodd-Frank law explicitly defines whistleblowers as any individual or group of employees who provide “information relating to a violation of the securities laws” to the SEC.

Digital Realty, a publicly traded San Francisco-based company that owns and develops data centers, had appealed a lower court ruling in favor of a fired executive, Paul Somers, after he informed senior management about alleged violations by his supervisor but never reported the matter to the SEC.

Somers, a Digital Realty portfolio-management vice president from 2010 to 2014, sued the company, saying he was dismissed because he reported internally that his supervisor had hidden major cost overruns, eliminated internal controls and granted unsubstantiated payments to friends, according to court filings.

The SEC adopted rules in 2011 to prohibit corporate employers from retaliating against whistleblowers who try to report allegations of securities law violations or fraud. The rules allow the SEC to offer monetary awards to whistleblowers whose tips lead to successful enforcement actions.

Backed by President Donald Trump’s administration, Somers argued that whistleblower protections must extend to those who speak up internally in order to encourage people to report misconduct without fear of being fired. Digital Realty argued that the Dodd-Frank law’s definition of a whistleblower did not cover Somers.