United States: US Supreme Court Upholds Broad Scope Of Sarbanes-Oxley Act Whistleblower Protection

Last Updated: March 11 2014
Article by Mark D. Cahn, Thomas W. White, Arian M. June and Elizabeth H. Skey

Last week, the US Supreme Court issued an important decision addressing whether Section 806 of the Sarbanes-Oxley Act of 2002 (SOX) (codified at 18 U.S.C. § 1514A) limits protection from retaliation to the employees of public companies, or if it also covers employees of contractors to a public company. Lawson v. FMR LLC, No. 12-3 (March 4, 2014). In a 6-3 ruling, the Court held that Section 1514A whistleblower protection extends to employees of contractors and subcontractors of public companies, including investment advisers, law firms, and accounting firms.
Section 1514A created a private cause of action for whistleblowers who are alleged to have been retaliated against for reporting possible violations of the federal securities laws and other specified laws. In the pertinent part, Section 1514A provides that:  

"[n]o 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))... 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 by] the employee...."  

18 U.S.C. § 1514A (emphasis added).

Justice Ruth Bader Ginsburg's opinion said that the text of Section 1514A, other considerations such as legislative intent, and the Department of Labor's interpretation and similar prior whistleblower protection legislation that Congress drew on when drafting Section 1514A, all weighed in favor of interpreting the SOX whistleblower protection to cover employees not just of the public company itself, but of any officer, employee, contractor, subcontractor, or agent of a public company. The Court reasoned that the ordinary meaning of "an employee" in this context was the contractor's own employee. Slip Op. at 9 (emphasis added). Further, the Court reasoned that Congress did not intend to stop contractors from retaliating against whistleblowers employed by the public companies they served, yet permit them to retaliate against their own employees. Id. at 2. (Justices Antonin Scalia and Clarence Thomas joined in the opinion only to the extent it was based on the language of the statute itself.)
Petitioners Jackie Lawson and Jonathan Zang were employed by private company contractors that provided investment advisory services to a mutual fund complex. The petitioners brought SOX retaliation claims, asserting that they were terminated because they reported alleged fraud by the funds. Mutual funds file reports with the Securities and Exchange Commission, but typically do not have employees; rather, the funds are managed by employees of investment advisers. The Lawson decision means that such employees are protected by Section 1514A. The decision's scope is not limited to employees of mutual fund contractors but also extends to employees of other contractors to public companies, such as law firms and accounting firms.
Justice Sonia Sotomayor's dissent argued that the majority's holding gave the law a "stunning reach." Dissenting Op. at 2. A babysitter, for example, could bring a Section 1514A claim against his employer, merely because that employer was an employee of a public company. Id. Justice Ginsburg's opinion discounted the dissent's "fanciful visions of whistleblowing babysitters" and noted that "[f]ew housekeepers or gardeners... are likely to come upon and comprehend evidence of their employer's complicity in fraud." Slip Op. at 14-15.

Lawson's ultimate scope could hinge on legal questions under the law that remain unresolved. One such issue, which the Court identified but did not decide, is whether the law protects employees of contractors only to the extent the whistleblowing relates to the contractor fulfilling its role as a contractor for the public company, or extends to activities by the contractor that relate to non-public companies. Slip Op. at 23-24. Another issue is whether whistleblower protections apply broadly to a variety of fraud claims, or simply to allegations of shareholder fraud. The statute applies to "any conduct which the employee reasonably believes constitutes a violation of section 1341 [mail fraud], 1343 [wire fraud], 1344 [bank fraud], or 1348 [securities fraud], any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders...." 18 U.S.C. § 1514A(1). Some have argued that the predicate legal violations should be limited to claims of shareholder fraud. The Department of Labor Administrative Review Board, however, has held that SOX whistleblower protection "does not require that [] mail fraud or wire fraud pertain to a fraud against the shareholders." Brown v. Lockheed Martin Corp., ARB No. 10-050, Slip Op. at 9 (Feb. 28, 2011) (citations omitted). 
Lawson resolved an open question, and did so in a manner that interprets the scope of whistleblower protection expansively. Investment advisers to mutual funds, and indeed any private companies, law firms, or accounting firms that contract with public companies, should be mindful of the broad reach of Section 1514A. Retaliation taken against employees of such organizations for reporting possible public company misconduct may be actionable under SOX. These organizations might consider revisiting their internal policies and procedures to ensure that they comply with Section 1514A. For a more detailed discussion about mitigating the retaliation risks associated with whistleblowers, see Don't Tread on Whistleblowers: Mitigating and Managing Retaliation Risks — Part II SEC. REG. & LAW REP., 46 SRLR 167 (Jan. 27, 2014) available here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions