In Lawson, Supreme Court Expands SOX Whistleblower Protection to Employees of Private Contractors

by Goodwin

The U.S. Supreme Court recently held, in Lawson et al. v. FMR LLC, that the whistleblower protection provisions of Section 806 of The Sarbanes-Oxley Act (“SOX”) cover employees of privately owned companies performing contract services on behalf of publicly traded companies when they raise reasonably based concerns to their supervisors about fraud adversely affecting shareholders of the client company.  It reversed a federal appeals court decision that Section 806 only protects employees of publicly traded companies (see Goodwin Procter’s February 12, 2012 Financial Services Alert, “First Circuit Limits SOX Whistleblower Coverage to Employees of Public Companies”).

One of the plaintiffs was employed by a privately held investment advisory firm that contracted to advise and manage mutual funds; he alleged that he was fired for expressing concerns about inaccuracies in a draft registration statement that the advisory firm prepared for the SEC on behalf of its client mutual funds.  The other plaintiff was employed by a privately held brokerage firm affiliated with the advisor; she alleged that she was constructively discharged for reporting accounting practices that overstated expenses associated with managing certain mutual funds.

In pertinent part, Section 806 of SOX provides that:

No [public company] . . . , or any officer, employee, contractor, subcontractor, or agent of such company, may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of any lawful act done by the employee … to provide information … regarding any conduct which the employee reasonably believes constitutes [mail fraud, fraud by wire, bank fraud, or securities fraud], any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders, when the information … is provided to …a person with supervisory authority over the employee (or such other person working for the employer who has the authority to investigate, discover, or terminate misconduct….

The issue before the Supreme Court was whether the “employee” who is protected from discrimination in Section 806 refers to the employee of a public company or the employee of any of the others listed at the beginning of Section 806, including contractors to a public company.  A divided Supreme Court ruled (6-3) that Section 806 extended its protections to employees of contractors and others listed at the beginning of Section 806.

The federal mail fraud and wire fraud statutes that are referred to in Section 806 are extremely broad, and encompass virtually any conceivable type of fraud, having nothing to do with investor protection concerns underlying SOX.  In the words of a federal appeals court in Atlas Pile Driving v. FinCo., “[t]he crime of mail fraud is broad in scope and its fraudulent aspect is measured by a non-technical standard, condemning conduct which fails to conform to standards of moral uprightness, fundamental honesty, and fair play.” 

The Department of Labor’s Administrative Review Board (“ARB”) has broadly interpreted Section 806 to protect employees who make internal reports about a wide variety of alleged fraudulent conduct involving their employers – not merely reports of securities fraud or SEC rule violations.  For example, in Lockheed Martin v. Administrative Review Board, a federal appeals court upheld an ARB ruling that an employee’s internal report that her manager was arranging “business trips” to engage in sexual rendezvous and submitting false reports seeking reimbursement for her expenses related to that misconduct was protected activity under SOX because emailing false expense reports constituted wire fraud.  In another case, the ARB ruled that reporting concerns to an employer about possible fraudulent conduct by a customer was protected by SOX.

Significantly, the Lawson Court found it unnecessary to resolve concerns raised in amicus briefs by industry groups (including the U.S. Chamber of Commerce) that the implications of its holding that employees of private companies contracting with public companies are protected by SOX could lead to a spate of litigation brought by employees “who have no exposure to investor-related activities.” The Court expressly declined to determine the bounds of activity protected by Section 806, since the plaintiffs’ allegations about accounting improprieties and inaccuracies in registration statements (which had to be accepted as true for purposes of the motion to dismiss their claims) “fall squarely within Congress’ aim in enacting” the SOX’s whistleblower protection provisions.  Whether any limiting principles will be applied to require some nexus between the investor protection purpose of SOX and potential protected activity by employees of privately held contractors providing services to public companies remains an open question.

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.

© Goodwin | Attorney Advertising

Written by:


Goodwin 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.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

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.


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 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:

- 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.