Lawson v. FMR LLC
In a decision giving private company employers cause to reassess their employee policies and protocols, on March 4, 2014 the U.S. Supreme Court issued a split decision in Lawson v. FMR LLC that broadens the potential universe of individuals able to bring a whistleblower retaliation claim under the Sarbanes-Oxley Act to individuals employed by privately held companies. In Lawson, the whistleblower plaintiffs worked for privately held (as opposed to publicly held) companies that served as advisers to public mutual funds. In a divided and split decision, the Supreme Court ruled that both the legislative intent and the plain language of §806 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1514A) suggests a broad interpretation and protects employees who work for private company contractors and subcontractors of public companies from retaliation for "whistleblowing" activities.1 The Lawson decision underscores the need for both public and private companies to craft and document an appropriate plan of internal controls and related strategies for responding to whistleblowing complaints.
The Court's majority relies heavily on the legislative history of §1514A, specifically relying on the similarities between that section and §42121 of the 2000 Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (AIR 21). In Justice Scalia's concurring opinion, also joined by Justice Thomas, Justice Scalia concurs in principal part with the majority and in the judgment, but disagrees with the majority's reliance on legislative intent and history noting both that he "does not endorse [. . .] the Court's occasional excursions beyond the interpretative terra firma of text and context, into the swamps of legislative history" and further that he is "confident that the majority of Senators and Representatives had no views whatever on how the issues should be resolved—indeed were unaware of the issues entirely."
Public policy considerations loom large in the majority's and the dissent's respective analysis and in the opinion. The majority analyzes how adherence to the dissent's view would mean that many individuals who are in a position to combat fraud that harms the public would be left in a similar position to the employees of Enron and Arthur Anderson who were retaliated against without recourse for attempting to speak up about fraudulent practices. It was this situation that served as the catalyst for and underpinned the foundation of the Sarbanes-Oxley Act. While the Court suggests that the expanded protection under Lawson may be limited to those instances where the employee's "protected conduct" relates to work performed by the contractor employer for the public company client, such a limitation was not expressly included in the Court's ruling. The dissent notes that the majority's interpretation of the scope of §1514A may have broadened the provision to the extent that claims may be covered even when the activity has no nexus to public company work and thus no relation to protecting the public from fraud by public companies – such that "a babysitter [is authorized] to bring a federal case against his employer—a parent who happens to work at the local Walmart (a public company)—if the parent stops employing the babysitter after he expresses concern that the parent's teenage son may have participated in an Internet purchase fraud." The majority finds that position to be overblown.
Both the majority and the dissent acknowledge that the Dodd-Frank Act, which was enacted after §1514A was adopted in its original form,2 also provides whistleblower protection by protecting employees of any employer from being retaliated against by their employer "for providing information to the SEC, participating in an SEC proceeding, or making disclosures required or protected under Sarbanes-Oxley and certain other securities laws."3 Of course, the majority and dissent differ as to the impact of this subsequent Dodd-Frank protection on the interpretation of §1514A.
Given the Dodd-Frank protections, and the Lawson decision broadening the scope of §1514A of the Sarbanes-Oxley Act, it is critical for employers, including private company employers, to maintain a robust whistleblower protection policy. Employees should be provided with a means to notify federal regulators or the company's audit committee or board of directors confidentially or anonymously of potential federal law violations by the company or its employees or agents. An anti-retaliation whistleblowing policy must impose a duty not to discharge, demote, suspend, threaten, harass or in any other manner discriminate or retaliate against an employee who provides information to, or otherwise assists, a federal regulatory or law enforcement agency or a supervisor about the conduct that the employee reasonably believes to constitute a violation of the securities law or federal laws prohibiting fraud. The policy should also insure multiple lines of reporting and contain assurances of meaningful and prompt investigations.
Corporate boards of directors and their committees must be vigilant in the discharge of their duties and in keeping up to date with the evolving standards of conduct expected of them. It is important for employers to understand the reach of Sarbanes-Oxley's and Dodd-Frank's whistleblower protections and understand what constitutes protected conduct under these acts.
1 Lawson v. FMR LLC, U.S., No. 12-3, 3/4/2014
2 §1514A was amended after it was first adopted to protect employees of subsidiaries of public companies and employees of nationally recognized statistical rating organizations (NRSROs).
3 Lawson v. FMR LLC (referencing 15 U.S.C. §78u-6(a)(6), (b)(1), (h))