In a recent opinion, the United States Supreme Court held that the whistleblower protection provisions of the Sarbanes-Oxley Act (“SOX”) applies to employees of private companies that act as contractors or subcontractors to public companies. Specifically, the issue before the Court was whether SOX’s whistleblower protection provisions, found at 18 U.S.C. §1514A, forbid publicly traded companies, mutual funds, and contractors or subcontractors of such companies from discriminating or retaliating against an employees of a privately-held contractor or subcontractor of a public company because of certain protected conduct. This decision could have widespread implications for private companies.
In Lawson, et al. v. FMR LLC, et al., decided on March 4, 2014, Petitioners Jonathan M. Zang and Jackie Hosang Lawson worked for private companies that were subsidiaries of FMR LLC (“FMR”) and provided advising/management services to the Fidelity family of mutual funds (“Fidelity funds”). The Fidelity funds are registered with the Securities Exchange Commission (“SEC”) and comply with the Securities Exchange Act of 1934.
Zang was an employee of FMR, Co. until July 2005, when FMR, Co. terminated his employment. Zang alleged that he lost his job as retaliation after voicing concerns about inaccuracies in a draft registration statement that violated federal security laws. Lawson was an employee of Fidelity Brokerage Services, LLC, a subsidiary of FMR, until 2007, when she resigned claiming that she had been constructively discharged. Lawson had filed several complaints with the companies and OSHA alleging that her employer retaliated against her for raising concerns about cost-accounting methods.
Zang and Lawson sued their respective Fidelity employers, alleging that the companies retaliated against them for reporting what they believed to be securities law violations. Section 1514A of the Sarbanes-Oxley Act protects employees of public companies from retaliation after the employee “blows the whistle” on the company. Zang and Lawson argued that § 1514A should also apply to employees of private contractors and subcontractors contracting with public companies, since these employees may be in the best position to report problems.
FMR argued that Congress only intended § 1514A to apply to public employees, and that extending coverage would result in an unmanageable amount of litigation. The First Circuit ruled that § 1514A protects only public employees, and that Congress must expand coverage if it wants to cover employees of private contractors. The Supreme Court granted certiorari, or review.
Justice Ruth Bader Ginsburg delivered the opinion of the 6-3 majority. The Supreme Court held that whistleblower-protection provision of the Sarbanes-Oxley Act protects employees of private contractors and subcontractors just as it does employees of the public company served by the private contractors and subcontractors. Because there was no language in the Act that specifically limited the covered employees to those working for the public company, the Court held that Congress must not have intended the Act to have such a limited scope.
The legislative record supports the view that Congress was aware of the role that outside contractors can play in recognizing and reporting fraud, and that fear of retaliation can prevent them from fulfilling that role.