Latest in Legislation

Supreme Court Strikes Blow to Whistleblowers

Compliance officers yearning for even more confusion and uncertainty in your job, rejoice! The U.S. Supreme Court just handed you a big serving of it.

We speak of the decision rendered Wednesday, Digital Realty Trust v. Somers. In that case, Digital Realty argued that whistleblower protections under the Dodd-Frank Act did not apply to its former employee, Paul Somers, because Somers did not first report his concerns to the Securities and Exchange Commission.

Instead, Somers only reported his concerns internally (that a senior executive had eliminated several internal controls and endangered sound financial reporting). Somers was then fired, and he argued that his dismissal violated anti-retaliation protections under Dodd-Frank.

Well, the Supreme Court didn’t buy it. By a 9-0 decision, the justices ruled that Dodd-Frank whistleblower protections only apply if a whistleblower first reports his or her concerns to the Securities and Exchange Commission.

That ruling is not a surprise. When the court heard arguments back in November, they were deeply skeptical of Somers’ position, even as they also voiced frustration that a strict, narrow enforcement of Dodd-Frank would leave some whistleblowers less protected.

Could Congress amend Dodd-Frank to allow more expansive whistleblower protections? Theoretically, yes. In our current political climate, however, I wouldn’t bet on it.

Implications for Compliance Programs

People tend to overestimate the immediate effects of an event, and underestimate the long-term effects. Compliance professionals would do well to remember that point as we consider this ruling.

In the immediate term, I suspect the effect for compliance officers will not be much. Companies are not going to roll out pro-retaliation policies. Whistleblower protections still apply under many other laws, from the False Claims Act, to the Sarbanes-Oxley Act, to the Equal Employment Opportunity Act.

And we should remember that in our modern, social media world, whistleblowers still have the ultimate protection: public outrage about outrageous behavior. The biggest whistleblower scandal of 2017 started with Susan Fowler disclosing sexual misconduct at Uber. Her allegations transformed the company, and eventually the national conversation about harassment. And Dodd-Frank whistleblower protections had nothing to do with it.

So I’m hard-pressed to see how this decision changes the mission and goals of a compliance program in practical terms. You wanted whistleblowers to work within the company last week; you still want them to work within the company today.

The Bigger Worries

Over the longer horizon, however, compliance officers might find their jobs more difficult.

First, if whistleblower protections only apply to those people who first report their concerns to the SEC — well then, they’re first going to report to the SEC. Cynics could even imagine outside law firms advertising for whistleblower claims, helping employees secure whistleblower protections in exchange for a slice of whatever award they might later get. And cynics are rarely wrong about the U.S. legal system.

Another tension might come from the corporate legal department. After all, the Digital Realty decision reduces liability risk. That is what legal departments want. Eventually, at least some (and possibly many) legal departments will use the Digital Realty standard to quash claims of whistleblower retaliation.

Ethics and compliance officers, however, have a different mission: to root out misconduct happening in the organization. That mission is partly political; you need employee opinion on your side to do it well. What the legal department sees as reducing liability risk, employees may well perceive as exploiting the law to retaliate against whistleblowers — and good luck maintaining an ethical culture once that opinion sets in.

How will the modern corporation navigate to avoid that slippery shoal, if at all? We don’t know yet. How will regulators and lawmakers respond? We don’t know that either.

We do know the job of the ethics and compliance officer has never been easy, and arguing for good ethical conduct is always hard, demanding work. As we all acclimate to what the U.S. Supreme Court just handed compliance officers, at least that hasn’t changed.

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