The U.S. Supreme Court recently granted certiorari in a case that considers whether an employee of a privately held contractor to a public company is protected from retaliation by the whistleblower provision of the Sarbanes- Oxley Act.

The case involves two former employees of a privately held mutual fund management company. One claimed to have been wrongfully terminated for raising concerns about inaccuracies in a draft registration statement for certain funds. The other claimed constructive termination relating to concerns she raised about cost accounting methodologies.

The mutual funds themselves are public companies but, as is common in the industry, they have no employees. Functions are performed largely through contractual arrangements with an investment adviser, sub-advisers and other contractors. In this case, those contractors were privately held.

At issue is whether the Sarbanes-Oxley whistleblower provisions protect an employee of a privately held contractor to a public company (e.g., a fund) from retaliation. The district court ruled in favor of the former employees. On an interlocutory appeal, the appellate court reversed and held that privately held contractors may retaliate against their own employees.

The Supreme Court decision will be of particular interest to mutual fund service providers, including auditing firms, many of which are privately held. The case is Lawson v. FMR LLC.