In a unanimous ruling on February 21, the U.S. Supreme Court narrowed the definition of a whistleblower under the Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act). This new definition limits the protections available to employees reporting alleged violations of securities law, and may result in more employees going directly to the U.S. Securities and Exchange Commission (SEC), rather than relying solely on internal processes.

Paul Somers, a portfolio manager for Digital Realty Trust, internally reported concerns that his supervisor was cutting costs, including hiding cost overruns. A few weeks after making his report, Mr. Somers was fired. He filed a wrongful termination suit, alleging he was dismissed in retaliation for disclosing his employer’s misdeeds. The Court rejected his claim, finding that the protections for whistleblowers in the Dodd-Frank Act do not extend to individuals who have not first reported the violation of the securities laws to the SEC.

Justice Ruth Bader Ginsburg, writing for the Court, said that the language and purpose of the Dodd-Frank Act leave no doubt that the term "whistleblower" refers only to someone who provides information to the SEC—not an individual who only reports the information internally.

The SEC whistleblower program was created by Congress in 2010 as part of the Dodd-Frank Act. This program allows employees to bring a claim for retaliation if they experience an adverse employment action after reporting alleged wrongdoing. This was intended to incentivize reporting of alleged violations. The program has awarded more than $179 million to 50 whistleblowers over the past five years.

Previously, many employees reported potential violations of securities laws internally, in accordance with corporate policies. Now, this new, narrower definition of a whistleblower may give employees an incentive to opt out of internal reporting mechanisms in favor of going directly to the SEC.

In addition to the whistleblower protections for securities law violations at issue in this case, the Dodd-Frank Act contains protections for whistleblowers who report alleged violations of federal consumer protection laws. Dodd-Frank protects employees of companies involved in the provision of consumer financial products or services who report alleged violations of the Consumer Financial Protection Act, any law subject to the jurisdiction of the Consumer Financial Protection Bureau (CFPB), or any CFPB rule.

Unlike the protections for reporting of alleged securities law violations, however, these protections apply if the employee reports the alleged violations to the employer, the CFPB, or any other federal, state, or local government authority or law enforcement agency.

Employers should take time to review their internal reporting programs and continue to encourage internal reporting in order to resolve issues quickly and minimize liability.