Private Company Employees Who Blow the Whistle on Public Company Fraud Are Protected from Retaliation

by Foley Hoag LLP

When it passed the Sarbanes-Oxley Act of 2002 (“SOX”), Congress established protections against retaliation for “employees” who report fraud at public companies. Since then, however, courts and commentators have disagreed about who are “employees” for the purpose of those protections -- only the employees of public companies or also the employees of private companies? On March 4, 2014, in Lawson v. FMR, LLC, the Supreme Court resolved that controversy, holding that the whistleblower protections of SOX extend to people who work at private companies that contract with or provide services to public companies. In so ruling, the Court broadly defined the class of potential plaintiffs who may file retaliation claims against their employers.

In Lawson, the plaintiffs, Jackie Lawson and Jonathan Zang, worked for investment advisor companies, which were not themselves public companies but which provided investment advisory and management services to public mutual funds. Lawson alleged that she had been constructively discharged after she reported concerns about accounting methods used in operating a mutual fund, and Zang claimed he was fired after reporting inaccuracies in a draft SEC registration statement. They both filed suit in the U.S. District Court for the District of Massachusetts. The District Court initially held that private company employees can seek relief under SOX, but on interlocutory appeal, the Court of Appeals for the First Circuit reversed and dismissed the plaintiffs’ complaint, holding that the whistleblower protections apply only to employees of public companies.

In a 6-3 decision, the Supreme Court held that Lawson and Zang can go forward with their retaliation claims. For a four-member plurality, Justice Ginsburg wrote that, based on the statutory text, “the mischief to which Congress was responding,” and other similar retaliation statutes, the whistleblower provision of SOX “shelters employees of private contractors and subcontractors, just as it shelters employees of the public company served by contractors and subcontractors.” Justice Ginsburg emphasized “Congress’ concern about contractor conduct of the kind that contributed to Enron’s collapse,” asking whether Congress, which enacted SOX in the wake of “the Enron debacle,” would have excluded from whistleblower protection "countless professionals equipped to bring fraud on investors to a halt.”

In her dissent, Justice Sotomayor recognized the long shadow that the Enron collapse cast over the case, but she expressed concern that an expansive reading of SOX was inconsistent with the law’s wording and would lead to “absurd results” in the future. Justice Sotomayor described a parade of private company employees -- from day laborers and checkout clerks to nannies and gardeners -- who provide services to public companies or the officers and directors of public companies and who might now file suits claiming retaliation for their reports of fraud. Justice Sotomayor suggested that Congress did not want to encourage extensive private litigation against private companies but rather “vest[ed] regulatory authority in the hands of experts with the power to sanction wrongdoers” -- the SEC for lawyers and the PCAOB of accountants, for example.

After Lawson, private companies, such as law firms, accounting firms and investment advisory companies, that contract with or provide services to public companies can be sued under SOX’s whistleblower provision if they retaliate against their own employees for reporting fraud at public companies. The full extent of this potential liability remains unclear from the decision. The dissent feared that the Court had opened the floodgates to claims by countless employees with no exposure whatsoever to investor-related activity, but the majority dismissed those “fanciful visions,” concluding that the Court need not “determine the bounds” of the whistleblower protection in Lawson, because this case presented a “mainstream application” of the law and the retaliation claims by Lawson and Zang “fall squarely within Congress’ aim” in enacting the relevant provisions of SOX.

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.

© Foley Hoag LLP | Attorney Advertising

Written by:

Foley Hoag LLP

Foley Hoag LLP 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.