U.S. Supreme Court Rules That Employees Of Private Contractors Of Public Companies Are Covered By SOX Whistleblower Protections


In Lawson v. FMR, LLC, the U.S. Supreme Court held that the whistleblower protections established in the Sarbanes-Oxley Act of 2002 (SOX) cover employees of a public company's private contractors and subcontractors, reversing the opinion of the U.S. Court of Appeals for the First Circuit. SOX prohibits retaliation against employees who "blow the whistle" on various forms of fraud by public companies, such as mail, wire, securities, and shareholder fraud.  The plaintiffs were employees of private companies that contract with or advise mutual funds, which are commonly public companies with no employees.  The plaintiffs claimed that FMR discharged them for blowing the whistle on alleged fraud by mutual funds.  In ruling for the plaintiffs, the Court explained that SOX’ whistleblower protections aim to ward off another Enron debacle.  The Court said that outside professionals, such as accountants, auditors, and lawyers, bear significant responsibility for reporting fraud by the public companies with whom they contract, and that fear of retaliation was the primary deterrent to such reporting by the employees of Enron's contractors.  The Court said that its decision avoided exclusion of the entire mutual fund industry from SOX’ whistleblower protections.  The Court’s decision thus clarifies the significant scope of SOX’ anti-retaliation provisions and will likely lead to an increase in litigation in this area.

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