S-O-X Protects Only Public Company Whistleblowers, Or Does It?

by Sheppard Mullin Richter & Hampton LLP

[author: Robert D. Rose]

DOL’s View

Thomas Spinner was a CPA whose firm provided accounting and audit services to a public company. Spinner’s accounting firm was not publicly-traded. A month after being assigned to audit the pubic company, Spinner was removed and fired. As required by S-O-X, he filed a whistleblower complaint with OSHA alleging that his termination was the result of his reporting internal control problems at the customer. A year later, in February 2010, OSHA concluded that Spinner was S-O-X protected, but he would have been terminated regardless of his report.

Spinner appealed to an ALJ, who granted summary decision to his employer because it was non public and, thus, outside the scope of S-O-X. Spinner pressed on until the DOL Administrative Review Board (ARB) issued its decision, two years later, concluding that Spinner was protected by S-O-X. Spinner v. David Landau and Associates, LLC., ARB Nos. 10-111 and -115. ALJ No. 2010-SOX-29 (ARB May 31, 2012).

The ARB relied on DOL regulations (29 CFR §1980.101) that implemented Section 806(a) of S O-X. First, an employee is “an individual presently or formerly working for a [public] company or company representative.” Next, a “company representative” is “any officer, employee, contractor, subcontractor, or agent of a [public] company.” DOL’s view is that Section 806 [codified as 18 USC 1514A(a)] protects employees of publicly-traded companies as well as the employees of contractors, subcontractors, and agents of those publicly-traded companies.

The First Circuit View

The ARB decision is completely at odds with the First Circuit’s February 2012 decision in Lawson v. FMR, 670 F.3d 61. Lawson was—and remains—a case of first impression in the federal courts of appeal. The Lawson plaintiffs were employees of investment advisors servicing publicly-traded mutual funds. The Lawson majority held that only public company employees are S-O-X-protected. The dissenting judge found the statutory language of 18 USC 1514A(a) to be clear: “No…contractor [of a public-traded company]…may discharge…an employee.”

Spinner was the third ARB decision to conclude that S-O-X coverage is not limited to public company employees. Spinner did not arise in the First Circuit so the ARB was not bound by it. However, in light of the Lawson decision, the ARB devoted 25 additional pages in Spinner to explain its holding.

Lawson has a cert. petition pending at the Superior Court. On October 9, the Court invited the Solicitor General to file a brief “expressing the views of the United States” in Lawson. At the First Circuit level, DOL and the SEC had filed amicus briefs supporting S-O-X coverage for employees such as Lawson.

What Does This Mean for Employers

While a S-O-X whistleblower must begin his case in the DOL administrative forum, he can depart for federal court after 180 days. There is dual jurisdiction, plus appellate court review of ARB decisions. A non-public contractor employee should expect a more favorable outcome within DOL. His employer should be prepared to rebut Spinner and preserve its defenses for appeal.

While awaiting resolution of these sharply-contrasting interpretations of S-O-X coverage, contractors, subcontractors and agents who service publicly-traded companies should protect themselves from allegations of retaliation. Don’t delay consideration of an employee’s complaints about improprieties at the public company customer. The more that a contractor’s practices resemble its public company customers’ practices—ethics policies, reporting systems, training, investigation and responsiveness to complaints—the more difficult it should be to prove that retaliation was the cause for termination.


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.

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