On Tuesday, the United States Supreme Court issued a ruling that dramatically expands the reach of whistleblower protection under the Sarbanes-Oxley Act of 2002 (“SOX”). The Court’s decision inLawson v. FMR, LLC, 571 U.S. __ (2014), authored by Justice Ginsberg, recognized that not only can employees of public companies claim SOX’s protections for reporting fraud or other delineated wrongdoing, but also “employees of privately held contractors or subcontractors – for example, investment advisers, law firms, accounting enterprises – who perform work for public companies” can as well. All individuals and businesses – whether public or private – who are contractors for a publicly-traded company are now subject to SOX whistleblower protections for retaliation against an employee for reporting various types of fraud involving the public company.

In Lawson, petitioners were employees of a privately held company that provided advisory and management services to a publicly-traded mutual fund. Typically, such mutual funds have no employees but instead contract with an investment advisor to handle operations. While employed by the investment advisor, one of the petitioners raised concerns about accounting methodologies associated with the mutual fund, and claimed to have suffered adverse employment actions as a result. The other petitioner, also an employee of the privately held contractor, claimed that he was fired in retaliation for raising concerns about inaccuracies in a draft registration statement relating to the mutual fund. Petitioners commenced administrative whistleblower complaints and their former employer moved to dismiss on the grounds that it was not subject to SOX because it was not a public company. Appeals followed and the Supreme Court granted certiorari. Looking to AIR21 (the federal whistleblower act pertaining to airlines and other air carriers on which SOX is based), the Court held that SOX “whistleblower protection extends to employees of contractors and subcontractors” – even if privately held – if the protected activity pertained to public companies.

The dissent, authored by Justice Sotomayor, evidences why everyone should pay close attention to the Lawson holding. It raises concerns that under this new interpretation “a babysitter [could] bring a federal case against his employer – a parent who happens to work at the local Walmart (public company) – if the parent stops employing the babysitter after he expressed concern that the parent’s teenage son may have participated in an Internet purchase fraud.” It also highlights the possibility of a suit “against a small business that contracts to clean the local Starbucks (public company) if an employee is demoted after reporting that another nonpublic company client has mailed the cleaning company a fraudulent invoice.” While the majority opinion downplays the likelihood that “babysitters, nannies, gardeners, and the like will flood OSHA with §1514A complaints,” the dissent gives concerning context to the breadth and import of Lawson.