The U.S. Supreme Court extends Sarbanes-Oxley whistleblower protections, but the reach of the decision may be curtailed by “limiting principles” referenced by the Court.
On March 4, the U.S. Supreme Court issued its decision in Lawson v. FMR LLC,[1] holding that the whistleblower protections afforded by 18 U.S.C. § 1514A of the Sarbanes-Oxley Act of 2002 (SOX) extend to employees of contractors and subcontractors of public companies. The Court addressed concerns about the potential reach of its decision, however, by referencing “various limiting principles” that were advanced by the plaintiffs and Solicitor General, including that an entity may not be considered a “contractor” unless its “performance of [the] contract will take place over a significant period of time” and that SOX would “protect[] contractor employees only to the extent that their whistleblowing relates to the contractor fulfilling its role as a contractor for the public company, not the contractor in some other capacity.”[2] Because the plaintiffs at issue sought only “mainstream application” of SOX protections, however, the Court determined that it did not need to “determine the bounds of §1514A today.”[3]
Background and Summary
Plaintiffs Jackie Hosang Lawson and Jonathan M. Zang originally filed separate complaints with the Occupational Health & Safety Administration of the U.S. Department of Labor (DOL) alleging unlawful retaliation under § 1514A by their respective former employers—privately held companies (collectively, the defendants) that provide advisory and management services to a family of SOX-covered mutual funds that have no employees and thus were not parties to either case. Each plaintiff separately sought de novo review of his or her complaint by the U.S. District Court for the District of Massachusetts after the 180-day period specified in § 1514A(b)(1) concluded without a final decision by the DOL.
The defendants moved to dismiss both complaints on the grounds that neither plaintiff was covered by § 1514A as both were employees of privately held companies and SOX whistleblower protections extend only to employees of defined publicly traded companies. The district court denied the defendants’ motions to dismiss, holding that the whistleblower protections of § 1514A extend to employees of private agents, contractors, and subcontractors to public companies.[4]
A divided panel of the U.S. Court of Appeals for the First Circuit, reviewing the district court’s decision via interlocutory appeal, reversed. The majority found that § 1514A unambiguously confined its reach to employees of companies that have a class of securities registered under section 12 of the Securities Exchange Act of 1934 (1934 Act) or those that file reports with the SEC pursuant to section 15(d) of the 1934 Act.[5]
The Supreme Court granted certiorari and reversed the First Circuit in a 6–3 decision, holding that § 1514A “shelters employees of private contractors and subcontractors, just as it shelters employees of the public company served by the contractors and subcontractors.”[6] Justice Ruth Bader Ginsburg, writing for the majority, based this decision on several factors, including the fact that the majority of mutual funds are public companies with no employees; therefore any purported whistleblowing must be made by an employee on “another company’s payroll.” Justice Ginsburg reasoned that, if § 1514A did not apply to these employees, all possible persons equipped to raise concerns of fraud on investors with respect to such mutual funds would be left unprotected by SOX...
