Supreme Court Expands Whistleblower Protections

This article was written by Alice K. Jump, a partner with the Firm.

In a major ruling under the whistleblower provisions of the Sarbanes Oxley Act (“SOX”), the Supreme Court, in a 6-3 decision, extended the statute’s anti-retaliation provisions to employers of privately held contractors or subcontractors who perform work for public companies.  The decision significantly expands the scope of SOX’s whistleblower protection and will likely generate more claims from employees who assert that they have suffered adverse employment consequences because they reported corporate wrongdoing.

The case, Lawson v. FMR LLC et al., 571 U.S. __(2014), involved claims by employees of a privately owned investment advisor that provided advisory and management services to the Fidelity family of mutual funds.  The advisor was not a publicly traded company but the funds were.  Plaintiffs alleged that they were fired in retaliation for raising concerns about overstated expenses and inaccurate SEC filings.  The lower courts dismissed the action on the ground that the plaintiffs were not employees of a company with publicly traded shares.  In a majority opinion, authored by Justice Ginsburg, the Supreme Court reversed, holding that SOX’s statutory language, as well as its remedial purposes, mandated a finding that employees who worked for contractors or subcontractors of a public company were also covered by the statute.  The Court specifically mentioned lawyers and accountants as categories of employees who should be protected from retaliation for reporting wrongdoing about their employers when engaged in work for a public company.  The dissent, authored by Justice Sotomayor, warned that the Court’s interpretation was overly broad and could lead to instances where babysitters and construction workers could bring a SOX claim against an employer if that employer had an ongoing contract with a public company.

Lawson raises issues of how to define a contractor or subcontractor.  It also leaves open the question of what kind of wrongdoing will give rise to a SOX anti-retaliation claim.  In the near term, however, it is clear that the scope of SOX has expanded and both employers and employees who work on matters related to public companies should consider the statute when confronted with a potential whistleblowing claim.

This article is intended only as a general discussion of these issues. It is not considered to be legal advice or relied upon. We would be pleased to consider providing additional details or advice about specific situations. For additional information on this topic,  please feel free to contact Alice Jump who regularly counsels and litigates for clients in the employment, financial services, partnership  and real estate areas and who has particular experience in whistleblowing claims.