"Supreme Court Clarifies Scope of Sarbanes-Oxley Whistleblower Protections to Include Employees at Private Firms That Contract With Publicly Traded Companies"

Today, in a 6-3 decision, the U.S. Supreme Court held in Lawson v. FMR LLC that the Sarbanes-Oxley Act’s whistleblower protections apply to employees of a public company’s private contractors and subcontractors. Justice Ginsburg delivered the opinion of the Court, Justice Scalia (joined by Justice Thomas) concurred in part and in the judgment, and Justice Sotomayor dissented (joined by Justices Alito and Kennedy).

The question presented was whether Section 1514A of the Sarbanes-Oxley Act, which protects employees of public companies from retaliation for reporting potential misconduct, extends to employees of a private company that works as a contractor for a public company. The employees seeking protection under Sarbanes-Oxley were employed by a private investment advisor to a family of public mutual funds. The employees alleged retaliation after they raised concerns related to the company’s cost-accounting methodologies and SEC disclosures.

The district court denied the company’s motion to dismiss after determining that the Act applied not only to employees of public companies, but also to employees of private companies that are contractors to a public company. The U.S. Court of Appeals for the First Circuit reversed, holding that the Act prohibits retaliation by public companies and their contractors against employees of a public company, but does not prohibit retaliation against employees of a nonpublic company by a public company or its contractors.

The Supreme Court reversed the decision of the First Circuit, holding that the plain language of the Act “shelters employees of private contractors and subcontractors, just as it shelters employees of the public company served by the contractors and subcontractors.” The Court rejected the investment advisor’s argument that the provision’s language concerning a “contractor, subcontractor, or agent” of a public company applied narrowly and only to contractors hired specifically to retaliate against whistleblowers, reasoning that hiring such a contractor could not insulate a company that chose who to fire and finding “no indication” that such contractors are a “real-world problem.” In addition, the statute’s language and enforcement mechanisms indicate that Congress expected the retaliator to be the purported whistleblower’s employer, rather than a contractor hired specifically to avoid the statute’s provisions.

The court reasoned that its textual interpretation aligned with Congress’ objectives of avoiding “another Enron debacle.” Congress recognized that certain of Enron’s contractors had retaliated against employees that objected to Enron’s practices. Without the provision’s protections, contractor’s employees “would be vulnerable to retaliation by their employers for blowing the whistle on a scheme to defraud the public company’s investors, even a scheme engineered entirely by the contractor.”

Download PDF

Written by:

Published In:

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Skadden, Arps, Slate, Meagher & Flom LLP | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »

All the intelligence you need, in one easy email:

Great! Your first step to building an email digest of JD Supra authors and topics. Log in with LinkedIn so we can start sending your digest...

Sign up for your custom alerts now, using LinkedIn ›

* With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name.