United States: SCOTUS Holds SOX Whistleblower Law Protects Employees Of Private Contractors; Yet Full Scope Remains Unclear

On March 4, 2014, the United States Supreme Court held in Lawson v. FMR LLC, 571 U.S. __ , Case No. 12-3 (Mar. 4, 2014), that §806 of the Sarbanes-Oxley Act of 2002 ("SOX") provides a cause of action for employees of private contractors and subcontractors that are retaliated against for whistleblowing activities. The plaintiffs in the case were former employees of private companies that provided investment advisory services to the Fidelity family of mutual funds. The plaintiffs alleged that they had blown the whistle on fraud at the mutual funds and had been terminated by their employers as a result. The mutual funds themselves, while "public" companies for purposes of the statute, have no employees. The Court reversed the First Circuit Court of Appeals' determination that the plaintiffs were not protected by the statute because they were not employees of the public company funds. The majority opinion, written by Justice Ginsburg, and the dissenting opinion, written by Justice Sotomayor, reflect deep disagreements regarding statutory interpretation, as well as what Congress intended when it enacted §806. The dissent said the expanded scope of the statute leads to "absurd results," pointing out that the Court's decision would allow a SOX claim made by a babysitter against his employer, who happened to work at Walmart (a public company), if the parent had fired the babysitter after he expressed concern that the parent's teenage son had participated in an Internet purchase fraud. While the Court refused to indulge such "fanciful visions of whistleblowing babysitters," it declined to determine the potential reach of the statute.

Section 806 of SOX (18 U.S.C. §1514A) provides in pertinent part: "[n]o [public] company ... 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 ... because of [whistleblowing activities]." (emphasis added). The question for the Court was simple enough: "Does §1514A shield only those employed by the public company itself, or does it shield as well employees of privately held contractors and subcontractors – for example, investment advisers, law firms, accounting enterprises – who perform work for the public company?" The answer to the question was far less simple, and both sides acknowledged imperfections in their respective interpretations.

The Court first looked at the key words of the statute and noted that, had Congress intended to restrict the statute's application to an employee "of a public company," it could easily have done so. Absent any qualification in the statute, the Court concluded that a contractor could not retaliate against its own employees for engaging in protected whistleblowing activities. The Court rejected the contrary interpretation that the statute bars contractors from retaliating against public company employees because (notwithstanding George Clooney's ax-wielding character in the movie "Up in the Air") contractors would not ordinarily be in a position to take adverse action against such employees. The Court also relied on other portions of the statute that focus on an employer-employee relationship between the retaliator and the whistleblower, including the remedies provision of the statute, which entitles a successful claimant to reinstatement and back pay – remedies that a contractor or subcontractor presumably could not provide an employee of a public company.

The Court acknowledged that its interpretation means that the statute, grammatically, protects all employees of public company officers and employees from retaliation. The dissent seized on this point in its charge that the majority opinion gave the statute "a stunning reach" that "encompasses any household employee of the millions of people who work for a public company and any employee of the hundreds of thousands of private businesses that contract to perform work for a public company." In addition to the "whistleblowing babysitter" hypothetical, the dissent imagined a claim against a small company that contracted to clean the local Starbucks (a public company) brought by an employee demoted after reporting that another nonpublic company client had mailed the cleaning company a fraudulent invoice. The majority countered that these concerns were "likely more theoretical than real" because "[f]ew housekeepers ... are likely to come upon and comprehend evidence of their employer's complicity in fraud." In any event, the majority viewed this problem as outweighed by the compelling arguments against the contrary view that the term "employee" refers only to public company employees.

The statutory heading – "Protection for Employees of Publicly Traded Companies Who Provide Evidence of Fraud" – also drew divergent views. The Court said, where a statute, like SOX, is "complicated and prolific," headings should be given little weight. The Court also noted other instances in which the statute's heading could be considered under-inclusive. The dissent believed that the statutory heading should be given more weight when it "decisively" favors one interpretation over another, as the dissent obviously felt was the case here.

Perhaps the decisive debate involved the Enron scandal, the event that Justice Ginsburg and Justice Sotomayor agreed largely drove SOX's passage. Citing Congressional investigations and news reports, Justice Ginsburg wrote that Congress was keenly focused on the role of Enron's accountants and lawyers in the fraud. Repeated concerns regarding outside professionals retaliating against their own employees who raised concerns about Enron led Justice Ginsberg to conclude that the statute was designed to encourage whistleblowing by contractor employees who suspect fraud involving the public companies with whom they work. The dissent countered that Congress's concern about accountants and lawyers was specifically addressed by SOX, but through regulatory authority that would address the problem. Specifically, the Public Company Accounting Oversight Board was created to regulate accountants and punish them when appropriate. And the SEC was required to establish rules of professional conduct for attorneys and granted power to punish wrongdoers. Justice Ginsberg acknowledged these provisions, but responded that none of them would further Congress' purpose of protecting accountants and lawyers from retaliation for blowing the whistle on their corporate clients. Notably, while concurring with the Court's conclusion based on the language of the statute and its context, Justice Scalia and Justice Thomas disagreed with their colleagues' attempt to divine Congressional intent from "the swamps of legislative history."

The specific facts of Lawson, no doubt, contributed at least in part to the result. The majority noted that its interpretation avoided "insulating the entire mutual fund industry" from the statute's reach. The Court said that the fact that investment advisers are regulated separately under the Investment Company Act of 1940, the Investment Advisers Act of 1940, and elsewhere in SOX misses the point because none of these provisions protect investment management employees from whistleblower protection. The Court found it implausible that Congress intended to leave such a "glaring gap" for employees managing money on behalf of tens of millions of investors.

The Court's decision undeniably raises serious concerns about the potential breadth of the SOX whistleblower provision. The Court sought to respond to the concerns of the dissent (and numerous amici groups supporting the defendant) that including contractor employees in the protected class would provide causes of action for employees with no exposure to investor-related activities. The Court called concerns that "babysitters, nannies, gardeners and the like" would bring whistleblower claims "hypothetical" and noted that it was aware of no case brought by a private contractor that was unrelated to shareholder fraud. The Court further suggested that overbreadth problems could be resolved by "limiting principles," including limitations on who is considered to be a "contractor" and the extent to which the whistleblowing relates to the contractor's work for a public company. The Court, however, avoided determining §806's bounds because the plaintiffs sought only a "mainstream application" of the statute's protections.

Whether the Court's decision "threatens to subject private companies to a costly new front of employment litigation," as the dissent fears, remains to be seen. What is undisputed is that millions of people are now protected by SOX that were not protected by the First Circuit's interpretation of the statute. The Court concedes that clarity may be needed, whether from Congress or from further litigation. Given the proliferation of whistleblower litigation in recent years, it is safe to assume that Lawson will be just the beginning of the debate regarding the scope of SOX's whistleblower protection.

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.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

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