The United States Supreme Court issued a landmark decision today in Lawson, et al. v. FMR, LLC, et.al., expanding whistleblower protections under the Sarbanes-Oxley Act of 2002 (SOX) to employees of private companies who are subcontractors or contractors for public companies. The eight-to-one decision, with a majority opinion delivered by Justice Ginsburg, is the first describing the scope of protection from retaliation for securities-fraud whistleblowers. In its decision, the Court highlighted that employees of contractors and subcontractors for public companies, including lawyers, mutual fund managers, and accountants, have often been exposed to retaliatory measures such as discharge and demotion for engaging in whistleblower activities, due to gaps in federal whistleblower protections. No more.
The Court granted certiorari to address the specific question of whistleblower protections in SOX applied to employees of privately-held companies working as contractors and subcontractors for public companies. SOX was enacted to safeguard investors in public companies and restore trust in financial markets. The specific provision of the Act, § 1514A, states 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 [whistleblowing or other protected activity].” The case arose on the heels of Senate reports and investigations of the Enron scandal showing widespread retaliation against investment bankers, brokers, and accounting firm professionals who raised concerns of potential securities fraud. As the Court explained, "The Sarbanes-Oxley Act contains numerous provisions aimed at controlling the conduct of accountants, auditors, and lawyers who work with public companies. [Citations] Given Congress’ concern about contractor conduct of the kind that contributed to Enron’s collapse, we regard with suspicion construction of §1514A to protect whistleblowers only when they are employed by a public company, and not when they work for the public company’s contractor." Slip Op. at 3.
Plaintiffs, Julie Lawson and Jonathan Zang, are former employees of different FMR, LLC, subsidiaries. FMR is a private company that contracts to advise and manage the Fidelity family of mutual funds. While the mutual funds are public companies, as is common in the mutual fund industry, the funds have no employees themselves who would otherwise act as gatekeepers to detect or deter fraud. Lawson alleged that she suffered adverse actions culminating in constructive discharge as a result of raising concerns that her employer overstated expenses associated with operating mutual funds. Zang also alleged that his employment was terminated after reporting inaccuracies concerning certain funds managed by the company in a statement intended for the SEC.
The Supreme Court decision today reverses the First Circuit Court of Appeals’ split decision holding that the term "employee" in § 1514A whistleblower protections refers only to employees of public companies and does not cover a contractor’s own employees. The decision paves the way not only to prevent future fraud on investors in public companies, but also provide meaningful remedies to whistleblowers subjected to retaliatory measures by their employers - whether such are publicly-held companies or not.
Employees of privately-held contractors and subcontractors exposing securities fraud in public companies may now seek remedies such as reinstatement or backpay for retaliation resulting from protected whistleblower activity. If you have experienced retaliation as a result of whistleblowing activity at your employer that contracts or subcontracts for a public company, contact Adetunji Olude.