Yesterday, the U.S. Supreme Court held, in a 6-3 decision - its
first regarding a Sarbanes-Oxley (SOX) whistleblower case - that
SOX's anti-retaliation provision covers employees of a public
company's private contractors and subcontractors.
This case was brought by two former employees of FMR LLC, a private
company that contracted to advise and manage Fidelity
Investment's mutual funds. As is typical in the mutual fund
industry, although the mutual fund itself is a public company, it
is operated and managed by employees of a separate private company.
In this matter, plaintiffs, who were employees of the private
company, alleged that they engaged in whistleblowing after
discovering putative fraud relating to the mutual funds, and that
they were thereafter retaliated against and discharged. Each
plaintiff then commenced a retaliation claim against FMR (but not
against the mutual funds) pursuant to SOX's whistleblower
protections.
The SOX provision at issue before the Court states: "No
[public] company . . ., or any . . . contractor [or] subcontractor
. . . of such company, may discharge, demote, suspend, threaten,
harass, or . . . discriminate against an employee in the terms and
conditions of employment because of [whistleblowing
activity]." 18 U.S.C. §1514A(a). Justice Ruth Bader
Ginsburg, delivering the opinion of the Court, found that the
ordinary meaning of this provision's language supports the
holding that the anti-retaliation provision of SOX covers employees
of a public company's private contractors and subcontractors.
Justice Ginsburg also noted that the Court's reading supports
SOX's goal to prevent another Enron situation and avoids
shielding the whole of the mutual fund industry (which primarily
relies on contractors and not employees). The majority opinion also
asserts that the Court's decision will not lead to a tidal wave
of SOX whistleblower lawsuits, which is disputed by the
dissent.
Given the Court's decision in this case, employers that are
privately held companies, but which contract to provide services to
public companies, must be aware that SOX's whistleblower
protections now extend to their employees to the extent such
employees provide services to public companies. Such whistleblowing
may include providing information or assisting an investigation
regarding conduct that an employee reasonably believes constitutes
mail fraud, wire fraud, bank fraud, securities or commodities
fraud, a violation of any U.S. Securities and Exchange Commission
rule or regulation, or any other provision of federal law relating
to fraud against shareholders. If an employee engages in such
protected activity, he or she is shielded from retaliation,
including discharge, demotion, suspension, threats, harassment, or
any other discrimination in the terms and conditions of that
individual's employment. Accordingly, for an employer to take
an adverse action against a whistleblower, it must have a
legitimate business reason for doing so that is unrelated to the
employee's whistleblowing conduct. The Court's decision
does not change this legal requirement, but it does broaden the
scope of its application.
The case name is Lawson v. FMR LLC et al., case number
12-3 at the United States Supreme Court.
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