On March 4, 2014, the U.S. Supreme Court decided Lawson v. FMR LLC, No. 12-3, holding that "whistleblower" protection under the Sarbanes-Oxley Act of 2002 extends to the employees of a public company's private contractors and subcontractors.

The Sarbanes-Oxley Act was enacted after the collapse of Enron Corporation to protect investors in public companies and to restore trust in financial markets. Among other things, Sarbanes-Oxley protects "whistleblowers," providing that: "No [public] company…or any…contractor [or] subcontractor…of such company, may discharge, demote…[or] discriminate against an employee in the terms and conditions of employment because of [whistleblowing activity]." 18 U.S.C. § 1514A (a). The plaintiffs, former employees of a private company that contracted with publicly-traded mutual funds, alleged that their employer, FMR LLC, retaliated against them for reporting putative fraud. Each sued FMR under § 1514A. In each case, the district court denied FMR's motion to dismiss the complaint on the grounds that § 1514A of Sarbanes-Oxley protects only employees of public companies. On interlocutory appeal, a divided panel of the First Circuit reversed, finding that while FMR was a contractor under § 1514A, that provision only protected public company employees.

The Supreme Court reversed, holding that "§ 1514A extends whistleblower protection to employees of privately held contractors who perform work for public companies." The Court looked first to the text of the statute and concluded that the ordinary meaning of § 1514A proscribed discharge of "the contractor's own employee," whereas FMR's interpretation required the additional words "of a public company" to be read into the statute. Next, the Court found this ordinary meaning confirmed by the provision as a whole. Contractors, it observed, cannot ordinarily take adverse actions against the employees of public companies they work for, so a narrower construction of "employee" would "shrink to insignificance" the ban on contractor retaliation. At the same time, the Court rejected as theoretical FMR's argument that only a narrow interpretation could avoid the "absurd result" that protection would extend to the personal employees of company officers and employees (like housekeepers and gardeners).

Analyzing the purpose of Sarbanes-Oxley, the Court found more support for extending whistleblower protection to employees of private contractors. Congress wanted "to ward off anther Enron debacle," it explained, and was focused on the role of outside contractors in facilitating fraud, as demonstrated by the legislative record. The legislative history, it reasoned, showed "that Congress enacted § 1514A aiming to encourage whistleblowing by contractor employees who suspect fraud involving the public companies for whom they work." Noting that virtually all mutual funds operate without employees, the Court also found implausible that Congress intended to insulate the entire industry from liability under § 1514A. Additionally, the Court rejected as hypothetical the concern that broadly interpreting § 1514A would open the floodgates for claims beyond its purpose. Nor did it see evidence of a narrower meaning in later legislative events like the Dodd-Frank Wall Street Reform and Consumer Protection Act. More instructive, according to the Court, were whistleblower protections in 49 U.S.C. 42121, on which Congress modeled § 1514A and which has been understood to protect contractor employees.

Justice Ginsburg delivered the opinion of the Court, in which Chief Justice Roberts and Justices Breyer and Kagan joined. Justice Scalia, joined by Justice Thomas, filed an opinion concurring in principal part and concurring in the judgment. And Justice Sotomayor filed a dissenting opinion, in which Justices Kennedy and Alito joined.

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