United States Supreme Court holds that whistleblower protections under Sarbanes-Oxley apply to employees of contractors of publicly held corporations

The United States Supreme Court issued its opinion in Lawson v. FMR LLC on March 4, 2014.  This case looked at whether the whistleblower protection provisions of Sarbanes-Oxley, found at 18 U.S.C. § 1514A, protect the employees of a privately held contractor or subcontractor that provides services to a public corporation.  The opinion expressly holds that:

based on the text of §1514A, the mischief to which Congress was responding, and either legislation Congress drew upon, that the provision shelters employees of private contractors and subcontractors, just as it shelters employees of the public company served by the contractors and subcontractors.

The facts involve two former employees, Jackie Hosang Lawson and Jonathan M. Zang, who separately initiated proceedings under section 1514A against their former employers, privately held companies that provide advisory and management services to the Fidelity family of mutual funds.  The mutual funds, which are public companies, are not parties to either case because the Fidelity funds have no employees themselves but instead contract with investment advisors to handle the day-to-day operations.  Fidelity Brokerage Services, LLC employed Ms. Lawson as a Senior Director of Finance.  She alleges that after she raised concerns about certain cost accounting methodologies, believing that they overstated expenses associated with operating the mutual funds, she suffered a series of adverse actions by her employer, which ultimately amounted to constructive discharge.  FMR Co, Inc. employed Mr. Zang as a portfolio manager for several funds.  He alleges that he was fired in retaliation for raising concerns about inaccuracies in a draft SEC registration statement concerning certain Fidelity funds.  The entities that had employed Ms. Lawson and Mr. Zang moved to dismiss both suits, arguing that they are privately held and that section 1514A only protects employees of public companies.

In delivering the opinion of the Court, Justice Ginsberg clearly explained that the language of the statute is interpreted by giving the words used in the statute their ordinary meaning and the operative language of the statute means what it appears to mean.  In this case, that means that a contractor may not retaliate against its own employee for engaging in protected whistleblowing activity.  The opinion goes on to discuss how this interpretation fits with Congress’ goals at the time of enactment, namely to prevent another fraud on shareholders similar to Enron, and by protecting the employees of those that contract with the public company these goals would be meet because the contractor’s employees are likely to be aware of potential fraud.  On the other hand, the narrower interpretation, that contractors and subcontractors are prohibited from retaliating against the employees of the public company, does not make logical sense because contractors and subcontractors are unlikely to be in a position where they can retaliate against the public company’s employees.