Ruling Limits Whistleblowers to Nuclear Option

In February, the United States Supreme Court threw out an anti-retaliation suit brought by a former employee who was fired after internally reporting alleged securities violations. The case has overturned understanding of the test for employees to gain whistleblower status. In Digital Realty Trust, Inc. v Somers, the Court ruled that because the employee reported the alleged wrongdoing internally instead of directly to the Security and Exchange Commission (SEC), he was not protected. The SEC created rules to enforce the Dodd-Frank Act, which allowed for internal reporting. Those rules no longer obtain.

The Supreme Court’s interpretation does not match the protections offered under Sarbanes-Oxley or the anti-retaliation provisions set out in most United States discrimination legislation. In most cases, no distinction is drawn between internal reporting and reporting to a regulator. Instead, broad protections are afforded, with the purpose of encouraging individuals to reveal information about acts of wrongdoing. To ensure effective reporting, employees need to be protected and, in some cases, incentivized to report concerns and possibly blow the whistle. The Digital Realty case serves to undermine that goal.

The UK equivalent of the SEC, the Financial Conduct Authority, places the onus on businesses to keep their house in order. It requires financial services firms to put in place internal mechanisms that allow employees to blow the whistle. It requires organizations within its jurisdiction to appoint a director or senior manager as “whistleblower champion.” There is a duty to report certain matters that have a serious regulatory impact