March 21, 2014
whistlekeys.jpgThe United States Supreme Court (“USSC”) in Lawson v. FMR LLC, 572 U.S. No. 12-3 (Mar 4, 2014), held that the Sarbanes-Oxley Act (SOX's) whistleblower protection extends not just to employees of publicly-traded companies. The Court held SOX also protects employees of “private” (non-public) company contractors and subcontractors that do work for publicly-traded companies.  This was the USSC’s first time to decide a case under the anti-relation section (806) of SOX and it broadly expanded the protection.What is the Whistleblower Protection Provision of SOX

The “whistleblower protection” is contained in Section 806 of SOX, codified at 18 U.S.C. § 1514A(a). It says that no public company (i.e., one that registers securities under Section 12 of the Securities Exchange Act of 1934, required to file reports under Section 15(d) of the Securities Exchange Act of 1934 or certain subsidiaries thereof) or an "officer, employee, contractor, subcontractor, or agent...of such company" may "discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee" for engaging in a protected whistle-blowing activity.

Two former employees of a private company, FMR, LLC, claimed retaliation under Section 806. Their employer was a private company which provided mutual fund investment advice to a public Fidelity family of mutual funds.

Expansion of Employees Covered By Whistleblower Protection

The majority of the USSC held that SOX's Section 806 whistleblower protection extends to employees of a public company's private contractors and subcontractors as well.  The majority of justices (a 6-3 split) found this "consistent with the text of the statute and with common sense" because "contractors are in control of their own employees, but are not ordinarily positioned to control someone else's workers" (i.e., the public fund’s employees).  The majority made such finding even though Sarbanes-Oxley literally says, “Protection For Employees of Publicly Traded Companies”.

There was a vigorous dissenting opinion that SOX’s whistleblower protection does not “unambiguously cover the employees of private businesses that contract with public companies or the employees of individuals who work for public companies". It further stated, "if Congress had really wanted this section of 1514A to impose liability upon broad swaths of the private sector, it would have said so more clearly."  The three dissenting justices thought this opinion “could subject private companies to a costly new front of employment litigation.”

What This Opinion Means to Many More Employers Now

With this opinion, the USSC has greatly expanded the range of employers subject to the SOX whistleblower provision. It is estimated the coverage of this provision, based on the USSC’s opinion, would increase from about five thousand public companies to more than six million private ones. Employers ranging from very large to very small, and to contractors and subcontractors only tangentially connected to the publicly-traded company’s targeted shareholder activities could be covered.  Private company employers who are contractors or subcontractors of public companies, who previously thought they were exempt from potential Sarbanes-Oxley whistleblower claims by employees, now have to rethink policy on treatment of whistleblowers. They may also need to review employee handbooks, adopt codes of conduct for reporting consistent with SOX, and look closely at taking adverse action against an employee who might try to assert SOX whistleblower status.

Adair M. Buckner, Attorney at Law, is Board Certified in Labor and Employment Law by the Texas Board of Legal Specialization. Her other areas of practice include business law, business disputes, commercial litigation, estate planning, and probate. You can reach Adair at (806)-220-0150 or This material is not intended to be legal advice. The contents are intended for general information purposes only.

For a complimentary consultation* about your whistleblower policies and procedures, contact Adair Buckner.
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