Supreme Court Dramatically Expands Coverage Of Sarbanes-Oxley Whistleblower Protections

by Franczek Radelet P.C.
Contact

In Lawson v. FMR LLC, the U.S. Supreme Court held that the whistleblower protections found in the Sarbanes-Oxley Act (SOX) protect from retaliation employees of privately held contractors and subcontractors of publicly traded companies—and not just those employed directly by a public company.

In 2002, Congress passed SOX to safeguard investors in publicly traded companies and restore trust in the financial markets following the collapse of Enron and other high-profile accounting scandals. Among its many provisions, SOX empowered government regulators like the Securities and Exchange Commission to investigate and punish fraud in public companies. Congress found that “Enron had succeeded in perpetuating its massive shareholder fraud in large part due to a ‘corporate code of silence.’” To investigate fraud, the SEC and other law enforcement agencies obviously first need to know about it. So, Congress added whistleblower protections to SOX that prohibited “any officer, employee, contractor, subcontractor, or agent” of a publicly traded company from discharging, demoting, suspending, threatening, harassing, “or in any other manner discriminat[ing] against an employee in the terms and conditions of employment because” that employee provided information or otherwise assisted in an investigation of a fraud.

The issue in Lawson involved Fidelity’s mutual funds, which are publicly traded companies, but have no direct employees themselves as is common in the mutual fund industry. Instead, the mutual funds are often managed by private companies that contract with the funds. Two employees of the private companies that managed Fidelity’s mutual funds filed SOX whistleblower complaints with the Labor Department and the case eventually made its way to the U.S. Court of Appeals for the Second Circuit. There, the court of appeals relied on the heading of SOX’s whistleblower protection section (“Whistleblower Protection for Employees of Publicly Traded Companies”) and other aids in statutory interpretation to rule that SOX’s whistleblower protection provisions do not protect employees of privately held companies that are contractors or subcontractors of a publicly traded company. The Supreme Court rejected this interpretation.

Relying on the plain language of the statute, the Court held that SOX’s whistleblower protections do apply to employees of private entities that contract or subcontract with publicly traded companies. The decision in Lawson could have a potentially sweeping effect as any company that has a contract or subcontract with a publicly traded company, the employees of that contracting company now have SOX whistleblower protections. This could be lawyers, accountants, consultants, and other financial professionals—really anybody that works for an entity that has a contract or subcontract with a public company. The Court recognized the broad reach of its decision, but countered that it “would thwart Congress’ dominant aim if contractors were taken off the hook for retaliating against their whistle-blowing employees, just to avoid the unlikely prospect that babysitters, nannies, gardeners, and the like will” bring a flood of whistleblower complaints. Employers that have contracts or subcontracts with publicly traded companies should add SOX’s whistleblower protections to the list of protections afforded to employees and seek counsel should they receive a fraud claim involving a public company. 

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.

© Franczek Radelet P.C. | Attorney Advertising

Written by:

Franczek Radelet P.C.
Contact
more
less

Franczek Radelet P.C. on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*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. Or, sign up using your email address.