The United States Supreme Court just issued a decision in a highly anticipated whistleblower case, and unanimously held that the antiretaliation provision of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) applies only to employees who make reports of alleged violations of the securities laws to the Securities and Exchange Commission (“SEC”). Digital Realty Trust, Inc. v. Somers, No. 16-1276 (Feb. 21, 2018). In so doing, the Court rejected the view that an employee who complains to management, as opposed to the SEC, is protected under Dodd-Frank. The decision resolves a circuit split between the U.S. Courts of Appeals for the Second and Ninth Circuits—which held that internal reports to management are protected—and the Fifth Circuit—which held that they are not.

Dodd-Frank’s whistleblower protection provision defines a whistleblower as “any individual who provides . . . information relating to a violation of the securities laws to the [SEC].” 15 U.S.C. § 78u-6(a)(6). In the Somers case, Paul Somers, an employee of Digital Realty Trust, Inc. (“Digital Realty”), made complaints to upper management about suspected securities law violations by Digital Realty. When Digital Realty later terminated his employment, he brought a claim under Dodd-Frank, alleging whistleblower retaliation. Digital Realty moved to dismiss his claim, asserting that Mr. Somers failed to state a claim because he did not make a report to the SEC. The Northern District of California denied the motion and the Ninth Circuit affirmed. The Supreme Court reversed the decision below, reasoning that although the SEC had promulgated a rule indicating that reports to a supervisor were covered by Dodd-Frank’s antiretaliation provision, the rule contradicted “clear and conclusive” statutory language—i.e., that the report must be made “to the [SEC]”—and thus was entitled to no deference.

This decision is welcome news for employers facing actual or threatened litigation by employees under Dodd-Frank who allege that they have reported wrongdoing internally. It does not, however, suggest that employers should not take seriously internal reports of wrongdoing. There are many other federal and state laws, besides Dodd-Frank, that protect internal employee-reporters from retaliation. For example, the Somers decision explains that claims of retaliation under Sarbanes-Oxley can be made based on a complaint to a supervisor (although Sarbanes-Oxley has a shorter deadline for filing a claim—only 180 days—an administrative exhaustion requirement not present under Dodd-Frank, and does not permit the same financial recovery as Dodd-Frank). And among the other antiretaliation protections available to employees, employees who make internal complaints of sexual harassment or discrimination are protected from retaliation by Title VII of the Civil Rights Act. Whatever the statutory bases for recovery, it is also important to note that employees bringing claims against employers are increasingly likely to bring claims of retaliation. The Equal Employment Opportunity Commission (“EEOC”) reported in 2017 that nearly half of all charges filed with the EEOC contained claims of retaliation.

If confronted by an employee’s internal or external complaint of wrongdoing, an employer should of course take the complaint seriously, both to ensure the absence of internal misconduct and to avoid liability. Moreover, if the employer is considering taking an adverse employment action against the employee (for example, if the employer is planning a reduction in force that impacts the employee), then it is important to consult counsel to understand what, if any, antiretaliation protections apply to the employee’s conduct in order to assess potential risk. As the Somers decision makes clear, this analysis should include a careful analysis of the applicable statutory text.