In Lawson v. FMR LLC, - U.S. - (case no. 12–3, decided March 4, 2014), the Supreme Court held that the “whistleblower” protections of the federal Sarbanes-Oxley Act extend not only to employees of public companies who are retaliated against for having exposed fraudulent activity by the company, but to employees of privately held contractors that render services to public companies, as well.
The plaintiffs in Lawson worked for private companies that provided investment advisory and management services to a major public mutual fund company. The two plaintiffs (who had filed separate cases) alleged that they had been terminated, respectively, for raising concerns about the mutual fund’s accounting methodologies; and for questioning the accuracy of a draft of an SEC registration statement that was being prepared by the public fund company.
At issue was the “whistleblower” provision of SOX, 18 U.S.C. § 1514A, entitled “Whistleblower Protection for Employees of Public Companies”. It provides that: “No [public] company . . . , or any officer, employee, contractor, subcontractor, or agent of such company, may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of [whistleblowing or other protected activity].” Does this language protect only employees of public companies? Or does it protect employees of their contractors, too?
The First Circuit in Lawson had ruled that this applied only to employees of public companies, not those of contractors. The U.S. Department of Labor’s Administrative Review Board held the opposite view, having ruled in a case entitled Spinner v. David Landau & Assoc. LLC that a contractor’s employee who blew the whistle on financial fraud would also be protected by SOX’s anti-retaliation provisions.
In reaching its opinion, the Supreme Court majority concluded that SOX’s statutory text, its legislative history, and its statutory purpose favored a broader reading of the anti-retaliation provision. Justices Sotomayor, Alito, and Kennedy dissented.