U.S. Supreme Court: Sarbanes-Oxley covers private contractors, subcontractors of public firms


OLYMPUS DIGITAL CAMERAWhistleblowers who work for private contractors and subcontractors of public firms are covered by the Sarbanes-Oxley Act’s whistleblower protections, the U.S. Supreme Court has ruled. In Lawson et al v. FMR LLC et al .

The justices voted 6-3 on March 4 to reverse a lower court’s dismissal of lawsuits filed by two whistleblowers. The whistleblower plaintiffs had raised concerns about possible securities fraud in connection with their work for private companies, known collectively as FMR, that “contract to advise or manage [public] mutual funds.” [U.S.C.]

FMR argued that whistleblower protections of  the Sarbanes-Oxley Act of 2002, as stated in 18 U.S.C. § 1514A protected only employees of public companies. But, the Court ruled that a plain reading of the text, and legislative history indicating Congress intended to prevent another Enron debacle, argued more persuasively for a more  expansive interpretation that includes employees of contractors and subcontractors of public companies. Justice Ginsberg, writing for the majority, wrote: “FMR’s interpretation of the text requires an insertion of ‘of a public company’ after ‘an employee.” [See text below.]

18 U.S. Code § 1514A – Civil action to protect against retaliation in fraud cases

 (a) Whistleblower Protection for Employees of Publicly Traded Companies.— No company with a class of securities registered under section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 78l), or that is required to file reports under section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78o (d)) including any subsidiary or affiliate whose financial information is included in the consolidated financial statements of such company, or nationally recognized statistical rating organization (as defined in section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78c), [1] or any officer, employee, contractor, subcontractor, or agent of such company or nationally recognized statistical rating organization, 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—

In a dissent, Justice Sotomayor (joined by Justices Alito and Kennedy) expressed concern that the ruling would lead to babysitters suing employers who work for public companies like Walmart.  Justice Scalia wrote a concurrence, joined by Justice Thomas, expressing agreement with the majority’s conclusion but disapproving of its “excursions” into legislative history.

ScotusBlog has a recap of Court arguments.