Executive management of publicly-traded companies should be concerned about a recent Department of Labor decision that extended whistleblower protection under the Sarbanes-Oxley Act to an employee of a contractor retained by a public company to provide compliance services under SOX who made a report of a possible violation of law or SEC regulations. Even without actual culpability by the public company, the extension by the DOL of whistleblower protection under SOX could lead to increased litigation involvement and expense that can arise when a company's outside auditors or SOX contractors terminate employees (whistleblowers and otherwise) who have worked on the company's account.
On May 31, 2012, in Spinner v. David Landau and Associates, LLC, the Administrative Review Board of the Department of Labor concluded that accountants employed by private accounting firms which in turn provide compliance services under the Sarbanes-Oxley Act (SOX) to publicly traded corporations are covered as employees of contractors, subcontractors or agents under Section 806 of SOX. Notwithstanding an earlier 2012 contrary decision by the First Circuit in Lawson v. FMR, LLC, the Board determined that Section 806 affords whistleblower protection to an employee of a contractor of a publicly traded corporation when the employee reports activity that he/she reasonably believes constitutes a violation of the laws or SEC regulations identified under Section 806. The Board declared that “construing Section 806 as only protecting employees of publicly traded companies would leave unprotected from retaliation outside accountants, auditors, and lawyers, who are most likely to uncover and comprehend evidence of potential wrongdoing” and determined that “an interpretation limiting protection of whistleblowers to those only directly employed by a publicly traded company would sabotage the overriding purpose of protecting investors.” For further information on the Board’s decision, click here.