“To safeguard investors in public companies and restore trust in the financial markets following the collapse of Enron Corporation, Congress enacted the Sarbanes-Oxley Act of 2002.” Lawson v. FMR LLC, 571 U.S. __, slip op. at 1 (March 4, 2014). Among other things, a provision of the Act, 18 U.S.C. § 1514A, provides protection for whistleblowers from retaliation. For over a decade, the Department of Labor, the agency with initial responsibility for whistleblower claims, has interpreted Section 1514A as protecting employees of public company contractors. 1 On Feb. 3, 2012, the First Circuit disagreed holding that Section 1514A only protects public company employees. 2 On March 4, 2014, the United States Supreme Court in a divided decision, confirmed that Section 1514A’s protection does, indeed, extend to employees of public company contractors. However, the Court’s decision exposes a variety of ambiguities in the text of Section 1514A that likely will serve as fodder for future disputes.
The Court’s Limited Holding. Lawson concerned whether the plaintiffs could maintain an action against their former employers under Section 1514A. Both were allegedly actually or constructively discharged in retaliation for whistleblowing activity but neither was employed by a public company. 3 Instead, both were employed by privatelyheld companies that provided investment and management services for publicly-traded mutual funds and the whistleblowing activity related to those mutual funds. 4 The precise legal issue concerned whether Section 1514A prohibited covered contractors from retaliating against their own employees (as opposed to the public company employees with whom they worked). The Supreme Court held that it did.
“An Employee” Ambiguity. The Court’s decision turned upon what “an employee” for purposes of Section 1514A means. However, Lawson only resolved that ambiguity in part. At the relevant time, 5 Section 1514A provided that:
No [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 activity].
18 U.S.C. § 1514A(a) (emphasis added). Lawson clarified that “an employee” includes an employee of a public company contractor. Lawson, however, expressly reserved for later decision whether Section 1514A prohibited a regulated actor (i.e., a public company, its officers, employees, contractors, subcontractors, or agents) from retaliating against the employees of other regulated actors. 6 Nor does the language of Lawson necessarily suggest what the Supreme Court might do if presented with that question. At its narrowest, the Court’s opinion can be read as holding only that “an employee” does not refer “exclusively” to public company employees. 7 That holding certainly does not preclude the possibility that “an employee” may also refer to “an employee” of any regulated actor.
That public company officers and employees were among the regulated actors suggests that “an employee” might refer to the employee of another. FMR, the employer, made just that same point in its briefing. FMR urged that “an employee” must refer exclusively to public company employees; otherwise, the statute would protect personal employees of officers and employees of public companies (such as housekeepers and gardeners). 8 Nonetheless, the Supreme Court embraced that reading reasoning that if “an employee” referred to a contractor’s employees to be grammatically consistent it had to refer to employees of public company officers and employees as well. 9 In so doing, the Supreme Court rejected, “as at odds with the text”, Plaintiffs and the Solicitor General’s argument which made the meaning of “an employee” contingent upon the regulated actor at issue. 10 Nevertheless, the Supreme Court regarded the extension of Section 1514A to personal employees of public company officers and employees as a “curiosity” not likely contemplated by Congress when the provision was drafted, 11 suggesting that the Court agreed with FMR, at least in that instance, that Congress included public company officers and employees in the list of regulated actors principally to prohibit them from retaliating against other public company employees (and not their own personal employees).
On the other hand, in concluding that “an employee” as applied to a contractor at least included a contractor’s employee, the Court emphasized that the prohibited retaliatory measures enumerated in §1514A(a)—discharge, demotion, suspension, threats, harassment, or discrimination in the terms and conditions of employment—are commonly actions an employer takes against its own employees. 12 Following that logic, the Court may conclude that, while “an employee” may not be limited to a regulated actor’s employees, “an employee” for purposes of Section 1514A would refer to “an employee” over whom the regulated actor has authority to set or change the terms and conditions of employment.
The Scope of Protected Whistleblowing Ambiguity. Lawson also calls into question the scope of the whistleblowing protected by Section 1514A. While enacted as a part of the Sarbanes-Oxley Act of 2002, Section 1514A does not limit protected whistleblowing activity to reports concerning securities fraud but also encompasses reports concerning mail, wire and bank fraud. 13 Recognizing this, amici warned that including contractor employees in the protected class could extend the protections afforded by Section 1514A to whistleblowing activity unrelated to investor fraud. The Court largely dismissed that concern noting the absence of any reported claims by contractor employees unrelated to shareholder fraud. 14 Instead, the Court emphasized that Lockheed Martin Corp. v. ARB, 717 F.3d 1121 (10 th Cir. 2013), the only case cited as protecting whistleblowing activity unrelated to shareholder fraud, involved the claim of a public company employee, not a contractor employee. 15 The Court also noted that the plaintiffs in Lawson were both firsthand witnesses to the kind of shareholder fraud Congress anticipated Section 1514A would protect. 16 Thus, no need existed to address the potential overbreadth of the statute in that context.
Nonetheless, Justice Ginsburg, who delivered the opinion of the Court, seemed to cite with favor certain limiting principles suggested by Plaintiffs and the Solicitor General that could resolve any perceived overbreadth. In particular, Judge Ginsburg appears to cite with favor the Solicitor General’s suggestion that Section 1514A should be interpreted to protect contractor employees only to the extent that their whistleblowing relates to the contractor fulfilling its role as a contractor for the public company. 17 Any implied endorsement of this limiting principle, however, does not reflect the opinion of the Court. Only four Justices joined the opinion in full. While Justice Scalia and Justice Thomas “joined the Court’s opinion in principal part”, Justice Scalia, in his concurrence (which Justice Thomas joined) specifically rejected Justice Ginsburg’s seeming acceptance of this limiting principle as having “no basis whatsoever in the statute’s text.”18
Still, one would expect a majority of the Court to favor some limiting principle. Both Justice Sotomayor’s dissent (which Justice Kennedy and Justice Alito joined) and Judge Ginsburg’s opinion (which Justice Breyer, Justice Kagan and Chief Justice Roberts joined without reservation) repeatedly identify investor protection as the aim of the Sarbanes-Oxley Act of 2002. 19 The dissent specifically suggests that Congress could “restrict the fraud reports that trigger whistleblower protection to those that implicate the interests of public company investors” as a means to restore “the balance struck by Congress” which the Court’s decision “upsets”. 20 Further, the text of Section 1514A, itself, suggests that some nexus must exist between protected whistleblowing activity and public companies. Regardless of whom “an employee” for purposes of the statute may be, the text expressly limits the class of regulated actors to public companies and those that work for them. Contrary to the concurrence, therefore, it would not be without basis to interpret Section 1514A at the very least as protecting only whistleblowing activity that relates to work performed by or for public companies.
The Contractor Ambiguity. Along the same lines, the Court’s discussion exposes ambiguity regarding the contractors to whom Section 1514A applies. According to the Court, Congress modeled Section 1514A after 49 U.S.C. § 42121. 21 Unlike Section 42121, however, Section 1541A does not define “contractor”. 22 Compare 49 U.S.C. § 42121 (defining contractor as “a company that performs safety-sensitive functions by contract for an air carrier.”). As with the scope of protected whistleblowing activity, the Court seems to favor Plaintiffs’ suggestion that the term “‘contractor’ does not extend to every fleeting business relationship” but only to “a party whose performance of a contract will take place over a significant period of time.” 23 As one of its restorative measures, the dissent recommends that Congress limit covered contractors to “those professionals that can assist in detecting fraud on public company shareholders, . . .” 24 Consistent therewith, the Court identifies employees of such professionals (e.g., lawyers, accountants, management companies) as among the persons Congress intended to protect 25 but does not imply that regulated contractors should be limited to such professionals. Justice Scalia does not address this issue in his concurrence. Regardless, a majority of the Court would appear to be amendable to some interpretation of “contractor” that would limit the scope of Section 1514A as well.