Employers Cautioned Despite Supreme Court’s Whistleblower Ruling

Although a U.S. Supreme Court ruling on who qualifies for whistleblower protection is seen as a win for corporations in some circles, employers need to think carefully before taking action against employees who engage in whistleblowing, according to an attorney who has been watching the case.

Whistle blower or whistleblower concept as a symbol of a secret informer agent posing as an employee with his cast shadow of a whistle as a metaphor for inside infoermation on misconduct in a 3D illustration style.

In a 9-0 ruling, the Court said whistleblowers seeking protection under the federal Dodd-Frank Act must have taken their concerns to the Securities and Exchange Commission (SEC) to be protected under the law. The case, Somers v. Digital Realty Trust Inc., involved an employee who told senior management of possible securities laws violations, but he did not report those concerns to the SEC before being fired.

The employee, Paul Somers, sued, claiming he suffered retaliation prohibited by Dodd-Frank. The company pointed to a definition of “whistleblower” in Dodd-Frank indicating complaints must be taken to the SEC to be protected.

The case ended up at the Supreme Court after the trial court sided with Somers and granted the employer’s request for an appeal to the U.S. 9th Circuit Court of Appeals. A divided 9th Circuit panel also sided with Somers.

When the case went to the Supreme Court, the justices took a narrow view of the whistleblower protections afforded under Dodd-Frank. Justice Ruth Bader Ginsburg wrote the Court’s opinion, and Justices Sonia Sotomayor and Clarence Thomas filed concurring opinions.

Despite the ruling, employers should be careful not to discourage employees from reporting concerns internally, says Ann Marie Painter, an attorney in the Dallas office of Perkins Coie.

“I think that employers should still make sure that they have robust internal reporting procedures,” Painter says, adding that employers also need to publicize their procedures to employees and make sure employees are trained on them.

One concern for employers from the ruling is that employees may skip internal reporting processes and go straight to the SEC if they think they have no protection from retaliation if they report issues only internally.

Painter’s advice to employers is to address whistleblowers just as carefully as they did before the Supreme Court’s ruling. If an employer decides to take adverse action against a potential whistleblower, it needs to make sure the reason for the action is solid and “wholly unrelated” to any whistleblowing reports the employee has made, she says.

Painter points out that other statutes also offer whistleblower protections and that the new ruling is just one narrowing of protections.

Regardless of whether reports are made internally or to the SEC, “there needs to be an open line of communication between management, HR, and legal so that everyone knows what has transpired,” Painter says. Too often HR, management, and legal departments aren’t on the same page and act without seeing the full picture.

Employers that want to do the right thing will not see the Court’s ruling as “open season on whistleblowers,” Painter says. Instead, they will continue to encourage internal reporting, and employees will be given reason to trust the process. Painter says the Court’s decision isn’t one whistleblowers are pleased with, “but employers need to view it with caution, too.”