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Lawson V. FMR: Private Contractors of Public Companies Fall Within Sox Anti-Retaliation Provision

Aug 30th, 2017

In Lawson v. FMR, LLC the Supreme Court ruled that the anti-retaliation provision of the Sarbanes-Oxley Act (SOX) includes private contractors and subcontractors employed by public companies in its whistleblower protections. The plaintiffs in this case were former employees of a group of private companies that advise and manage public mutual funds. The plaintiffs were terminated after they reported putative fraud related to the mutual funds. In the appeal below, the circuit court agreed with FMR that the whistleblower protections of SOX only apply to employees of public companies, not their contractors; however, the Supreme Court reversed this decision.

Generally, SOX prohibits retaliation against an employee who blows the whistle on what she reasonably believes to be a violation of statutes prohibiting mail fraud, wire fraud, bank fraud, securities fraud, any rule or regulation of the Securities and Exchange Commission (SEC), or any provision of Federal law relating to fraud against shareholders. The question before the Court in Lawson was whether these protections extended to employees of contractors of publicly traded companies, rather than solely the publicly traded company itself.

While FMR argued that, in context, the prohibition on a company or affiliated contractor to retaliate against a whistleblower should be read to only apply to employees of public companies, it based this argument on the general principle that SOX is targeted specifically at public companies and that the heading of the statutory section in question expressly stated that it relates to “Whistleblower Protection for Employees of Publicly Traded Companies.” However, the Supreme Court did not agree with this reading, holding that thorough statutory analysis, rather than simply reading the provision’s headings, indicated that SOX extended its protections to whistleblowers employed by contractors of publicly traded companies and that narrowing SOX would overlook protections the Act was meant to create.

The Court noted that FMR’s argument narrowing the protections of the SOX anti-retaliation provision improperly made the provision’s specific reference to “contractor” and “subcontractor” superfluous, as private contractors would very rarely be in a position to retaliate against or terminate employees of public companies. The court analyzed similar statutes to come to this conclusion, looking at how the employer-employee relationship has been interpreted. For example, in AIR 21, another statute including a similar whistleblower protection provision, the court discussed how whistleblower protection provisions are meant to protect the employee from their employer, noting that a private contractor will rarely, if ever, be considered the employer of an employee of a different, public, company.

The court also determined that in other sections of the statute, where Congress meant to specify that a section applied to only public employees, they included that qualifying language, leading the court to believe the omission of any qualifiers in subsection (a) of the anti-retaliation provision means that SOX was written to include contractors connected with public companies and prohibit them from retaliating against their own employees who report wrongdoing in connection with the public companies.

Lawson has expanded the scope of protections under the SOX anti-retaliation provision to cover employees of all contractors of publicly traded companies. In fact, the majority expressed that these protections even extend to the employees of independent auditing CPA, and law firms that provide services to publicly traded companies. This expansive protection is consistent with the purposes of SOX and the context in which it was enacted. The entire Sarbanes-Oxley Act, which covers much more than just retaliation against whistleblowers, was enacted in the wake of the Enron and WorldCom scandals, in order to combat what Congress saw as a pervasive corporate culture of greed coupled with a “code of silence.”

Importantly, Congress expressed strong condemnation of and concern with auditing firms such as Arthur Anderson that essentially turned a blind eye towards corporate transgressions and punished employees who had the audacity to speak up. The Lawson decision ensures that employees in a similar position to those at Arthur Anderson will be protected from retaliation when they blow the whistle on illegal conduct by a customer.

Do you believe you have been subjected to retaliation for blowing the whistle on illegal or unethical conduct? You should immediately contact an attorney to learn more about their rights and options. For more information, please visit whistleblower-attorney.com.

Whistleblower attorney Clayton Wire encourages everyone to honor and appreciate the important role that whistleblowers play in our society. Please join him at ilovewhistleblowers.com for more information about the history of whistleblower statutes and National Whistleblower Appreciation Day. Also, please use #ilovewhistleblowers to share this information with other on social media.