Keywords: Sarbanes-Oxley Act 2002, whistleblower protection, Lawson v. FMR LLC,
Today the Supreme Court issued one decision, described below, of interest to the business community.
Sarbanes-Oxley Act of 2002—Whistleblower Protection
To encourage reports of fraud by public companies, the Sarbanes-Oxley Act of 2002 offers whistleblower protections. Section 1514A of the Act provides that "[n]o public company..., or any officer, employee, contractor, subcontractor, or agent of such company, may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of" whistleblowing or other protected activities. Today, in Lawson v. FMR LLC, No. 12-3, the Supreme Court held that Section 1514A's whistleblower protections apply to the employees of private contractors and subcontractors that contract with public companies.
Petitioners, plaintiffs below, are former employees of subsidiaries of FMR, a private company that provides advisory and management services to the Fidelity family of mutual funds. Petitioners each sued FMR, alleging that FMR violated § 1514 by retaliating against them for complaining about allegedly improper business practices in the operation of the funds. The district court denied FMR's motion to dismiss petitioners' complaints, concluding that § 1514's whistleblower protections extend to the employees of private contractors and subcontractors that provide services to public companies. On interlocutory appeal, a divided panel of the First Circuit reversed, holding that § 1514A covers the employees of statutorily defined public companies only.
In an opinion by Justice Ginsburg, which Chief Justice Roberts and Justices Breyer and Kagan joined, and Justices Scalia and Thomas joined in part, the Supreme Court held that "§ 1514A whistleblower protection extends to employees of contractors and subcontractors." Slip op. 29. The Court based that holding on the text of § 1514A, "the mischief to which Congress was responding" in enacting Sarbanes-Oxley, and "earlier legislation Congress drew upon" in drafting the Act. Slip op. 2.
The Court looked first to the text of § 1514A, viewing the pertinent portion as reducing to: "no ... contractor ... may discharge ... an employee." The Court then reasoned that contractors' employees are covered because the ordinary meaning of "'an employee' ... is the contractor's own employee" (slip. op. 9); that the "prohibited retaliatory measures" listed in § 1514A "are commonly actions an employer takes against its own employees" (slip op. 10); and that the "enforcement procedures and remedies" contained in that provision "contemplate that the whistleblower is an employee of the retaliator" (slip op. 12). The Court concluded that this interpretation of § 1514A is also consistent with Congress's purpose in enacting Sarbanes-Oxley to prevent "another Enron debacle" by "encourag[ing] whistleblowing by contractor employees who suspect fraud involving the public companies with whom they work." Slip op. 16-17, 19. The Court also observed that Congress modeled § 1514A on the anti-retaliation provisions of another statute (the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century, 49 U.S.C. § 42121) that "has been read to protect employees of contractors." Slip op. 27-29.
Justice Scalia, joined by Justice Thomas, concurred "in principal part" and concurred in the judgment as an accurate reading of the text of § 1514A, but wrote separately to criticize the Court's reliance on legislative history.
Justice Sotomayor dissented, joined by Justices Kennedy and Alito, reasoning that the Court's interpretation of the statute "relies on a debatable view of § 1514A's text, is inconsistent with the statute's titles and context, and leads to absurd results that Congress did not intend." Dissent 21. In particular, the dissent warned that the Court's opinion "transforms § 1514A into a sweeping source of litigation that Congress could not have intended," including authorizing a wide variety of suits against individuals by "their nannies, housekeepers, and caretakers." Dissent 12.
Today's decision is of interest to all privately held companies that contract or subcontract to provide services to public companies. Under the Court's decision, these private companies face potential civil liability when employees allege that they suffered retaliation for reporting fraud or other wrongdoing, at least if the wrongdoing relates to their public-company clients.
Mayer Brown is co-counsel for the respondents.
Originally published March 4, 2014
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