Supreme Court Holds Sarbanes-Oxley Whistleblower Provision Covers Employees of Private Contractors
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On Tuesday, the United States Supreme Court held that the whistleblower protections that apply to employees of publicly traded companies under Section 1514A of the Sarbanes-Oxley Act, also  extend to employees of private contractors and subcontractors that serve those public companies.

The Sarbanes-Oxley Act protects employees who report securities fraud from retaliation by their employers.  Before Tuesday, it was unclear whether those employees had to work for the publicly traded company at issue, or if they also were protected if they were employed by a contractor to the public company.

In Lawson v. FMR  LLC, two former employees brought suit against their former employers (collectively “FMR”), private companies that advised or managed mutual funds, after allegedly suffering adverse consequences in response to reporting putative fraud.  FMR argued that the former employees were not entitled to relief under Section 1514A because  FMR is privately held and 1514A only protects employees of publicly traded companies.

In a 6-3 decision, the Court rejected FMR’s argument and broadly construed 1514A to cover employees of privately held contractors.  Relying on Congress’ concerns over contractor involvement in the Enron scandal when Sarbanes-Oxley was enacted and the possibility of retaliation against employees of those contractors, the Court concluded that “Congress enacted §1514A aiming to encourage whistleblowing by contractor employees who suspect fraud involving the public companies with whom they work.” 

The Court’s decision is the first Supreme Court decision regarding the Sarbanes-Oxley Act’s whistleblower provision, and the dissent expressed concern that the majority’s broad reading of 1514A could subject private companies to costly litigation.  According to the dissent, the holding is too broad and could “embroil federal agencies and courts in the resolution of mundane labor disputes that have nothing to do with [public company investors and the financial market].”  The dissent warns that the holding could prompt household or service employees to pursue retaliation claims.  The majority acknowledged this concern, and noted that if they were wrong Congress could easily fix the problem by amending 1514A to remove personal employees from the provision. The majority further noted that, “it would thwart Congress’ dominant aim if contractors were taken off the hook for retaliating against their whistleblowing employees, just to avoid the unlikely prospect that babysitters, nannies, gardeners, and the like will flood OSHA with §1514A complaints.”    

This decision has the potential to lead to an increased number of retaliation claims against private contractors.  Although the majority noted that this holding is unlikely to lead to an influx of unnecessary litigation, contractors should be cognizant of potential whistleblower claims.  As the dissent pointed out, contractors should be aware that Section 1514A doesn’t just protect employees who report securities fraud, it also protects employees who report mail, wire, and bank fraud.  It remains to be seen whether Congress will have to limit the Court’s broad interpretation of Section 1514A, but contractors should review their anti-retaliation policy with legal counsel to determine whether it should address Sarbanes-Oxley whistleblowers. 

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