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Supreme Court declines to broaden whistleblower protections

February 21. 2018 8:45PM

WASHINGTON (Reuters) — The U.S. Supreme Court on Wednesday refused to broaden protections for corporate insiders who call out misconduct, ruling they must take claims of wrongdoing to the Securities and Exchange Commission in order to be shielded against retaliation.

The justices ruled 9-0 in favor of Digital Realty Trust Inc , throwing out a lawsuit brought against the California-based real estate trust by a fired former employee who had reported alleged wrongdoing only internally and not to the SEC.

The 2010 Wall Street reform law known as the Dodd-Frank Act is unambiguous in offering no protection from retaliation such as firing or demotion to employees who report claims of securities law violations only in-house, the court ruled.

“The plain-text reading of the statute undoubtedly shields fewer individuals from retaliation than the alternative,” said Justice Ruth Bader Ginsburg, writing for the court.

The ruling could inhibit employees from trying to resolve complaints of wrongdoing without involving the SEC and impede retaliation suits filed by workers fired after making in-house complaints.

Whistleblowers not covered under Dodd-Frank still may have protections under another federal law, the Sarbanes-Oxley Act of 2002, but it offers a shorter time frame for filing a whistleblower lawsuit.

Digital Realty, a publicly traded San Francisco-based company that owns and develops data centers, had appealed a lower court ruling in favor of a fired executive, Paul Somers, after he informed senior management about alleged violations by his supervisor but never reported the matter to the SEC.

The case required the justices to decide who should be considered a whistleblower deserving of protection from corporate retaliation. The Dodd-Frank law explicitly defines whistleblowers as any individual or group of employees who provide “information relating to a violation of the securities laws” to the SEC.

“Somers did not provide information ’to the Commission’ before his termination ... so he did not qualify as a ’whistleblower,’” Ginsburg wrote.

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