On February 21, 2018, the U.S. Supreme Court issued a much anticipated decision in Digital Realty Trust, Inc. v. Paul Somers that the anti-retaliation protections of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) do not extend to an individual who reports alleged company misconduct only internally without submitting this information to the Securities and Exchange Commission (the “SEC”).

Paul Somers worked at Digital Realty Trust, Inc. as a vice president of portfolio management. While employed, he reported possible securities law violations to senior management but never reported this information to the SEC. Mr. Somers’ employment was subsequently terminated. He then sued Digital Realty in federal court accusing the company of violating the Dodd-Frank Act by firing him for complaining internally about alleged violations of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). Mr. Sommers never sought relief directly under the Sarbanes-Oxley Act. The district court, and then the Court of Appeals for the Ninth Circuit, supported Mr. Somers reliance on the SEC’s broad interpretation of the definition of the term “whistleblower” under the Dodd-Frank Act. The U.S. Supreme Court reversed the judgment of the Court of Appeals for the Ninth Circuit and remanded the case for further proceedings consistent with its opinion.

The Supreme Court ruling clarified the meaning of the term “whistleblower” for the purposes of the Dodd-Frank Act’s anti-retaliation provision: a “whistleblower” is any individual who provides information relating to a violation of the securities laws to the SEC. The Supreme Court held that Somers did not provide information to the SEC before his termination, so he did not qualify as a “whistleblower” at the time of the alleged retaliation, and he was therefore ineligible to seek relief under the anti-retaliation provisions of the Dodd-Frank Act.

Prior to the Supreme Court’s ruling, plaintiffs were invoking the anti-retaliation provisions of the Dodd-Frank Act rather than the anti-retaliation provisions of the Sarbanes-Oxley Act because under the Dodd-Frank Act, an employee can (i) file a complaint directly in a district court without exhausting administrative procedures prescribed under the Sarbanes-Oxley Act, (ii) obtain a double backpay award as opposed to single backpay remedy available under the Sarbanes-Oxley Act, and (iii) benefit from a longer statute of limitations under the Dodd-Frank Act, pursuant to which an action may not be brought more than 10 years after the date on which the violation occurs, compared to 180 days after the date on which the violation occurs or after the date on which the employee became aware of the violation under the Sarbanes-Oxley Act. With this ruling, it will be pointless to claim the anti-retaliation protections of the Dodd-Frank Act unless the employee reported the alleged violation directly to the SEC.

The Supreme Court’s decision will have important consequences for companies and employees. Employers should review their whistleblower programs to strengthen and provide more effective procedures to report, investigate, and remediate violations internally. In addition, companies should anticipate an increase in the number of complaints received by the SEC from employees to preserve a retaliation claim under the Dodd-Frank Act. While the Supreme Court’s ruling mostly affects public companies, private companies should review their whistleblower programs as this ruling is likely to move employee reporting to the forefront again.