March 6, 2014

Supreme Court Takes Broad View of Whistleblower Protection

By Jason Enzler

A Supreme Court decision this week settled a brewing conflict among authorities on who can benefit from the anti-retaliation protections for whistleblowers in the Sarbanes-Oxley Act of 2002 (SOX).  And the outcome is good for whistleblowers.   The Supreme Court ruled that employees of private contractors and subcontractors who provide services to public companies can be protected whistleblowers under SOX.

SOX, as many will recall, was enacted in the wake of the Enron debacle to prevent and root-out fraud at publicly traded companies.  As part of it fraud-fighting toolbox, SOX included a provision that protected whistleblowers from retaliation for reporting suspected fraud to their supervisors.  While it was clear that the anti-retaliation protections applied to employees of public companies, it was unsettled whether those protections would also apply to employees of nonpublic contractors working for public companies.  The Department of Labor, where SOX whistleblower complaints are initially filed, did extend those protections, but the First Circuit Court of Appeals limited the protections to employees of public companies only.

This week’s decision in Lawson v. FMR LLC settles this question in favor of the broader view of who qualifies as a protected whistleblower.  The majority reasoned that to hold otherwise would fly in the face of the plain language of SOX, not to mention the Congressional intent behind the statute.  The Court dismissed as hypothetical the minority’s argument that the holding would extend SOX protections too far such as, for example, to babysitters of executives of public companies.

On a side note, the decision illustrates that one cannot always predict how Supreme Court justices will rule.  The majority opinion was written by Justice Ginsburg and was joined by Justices Breyer and Kagan, but also by what many consider to be the conservative Justices Roberts, Scalia, and Thomas.  The minority opinion, authored by Justice Sotomayor, was joined by Justices Kennedy and Alito.

 

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