Supreme Court Extends SOX Whistleblower Protection To Contractors' Employees

Whistleblower

On March 4, in a suit brought by former employees of private companies that advise or manage mutual funds, the U.S. Supreme Court held (6-3) that the Sarbanes-Oxley Act’s whistleblower protection provision covers employees of a public company’s non-public contractors and subcontractors. Lawson v. FMR LLC, No. 12-3, 2014 WL 813701 (Mar. 4, 2014). The Court held, “based on the text of [the statute], the mischief to which Congress was responding, and earlier legislation Congress drew upon, that the [whistleblower protection] provision shelters employees of private contractors and subcontractors, just as it shelters employees of the public company served by the contractors and subcontractors.” The Court reasoned that to hold otherwise would insulate nearly the entire mutual fund industry, since mutual funds are public companies that typically do not have their own employees. The Court determined that based on the ordinary meaning of the provision’s language, whistleblower protection under the Act extends to a contractor’s own employees. Further, according to the Court, “Congress’ concern about contractor conduct of the kind that contributed to Enron’s collapse” cast doubt on a “construction of [the provision] to protect whistleblowers only when they are employed by a public company, and not when they work for the public company’s contractor.” Finally, the Court determined that Congress drew the Act’s whistleblower protection provision from the 2000 Wendell H. Ford Avia­tion Investment and Reform Act for the 21st Century, which has been interpreted to cover employees of contractors. The Court thus reversed the First Circuit’s contrary holding and remanded the case for further proceedings.