In a landmark whistleblower decision by the United States Supreme Court, Lawson, et al. v. FMR LLC, et al., the Court held that the whistleblower protections under the Sarbanes-Oxley Act of 2002 (“SOX”) apply not only to employees of public companies, but also to employees of private contractors and subcontractors who contract with public companies.

Jackie Hosang Lawson and Jonathan M. Zang both worked for private companies (collectively, “FMR”) that contracted with the Fidelity family of mutual funds to provide advisory and management services. Lawson alleged that she ultimately suffered a constructive discharge after raising concerns about cost accounting methods. Zang claimed he was fired in retaliation for raising concerns about inaccuracies in a draft SEC registration statement. Both filed separate lawsuits in federal district court in Massachusetts for whistleblower retaliation under SOX. FMR sought to have the cases dismissed claiming that neither Lawson nor Zang could assert such claims since they were not employees of public companies. The district court denied FMR’s request for dismissal, and the First Circuit reversed the decision.

In deciding this case, the Supreme Court analyzed the language of the statute and its purported purpose. According to the Court, the broad language of the statute and its reference to “an employee,” without further qualification, encompasses employees of both public companies and the private companies that contract with them. Further, the Court recognized that the purpose of the retaliation protections under SOX was to prevent Enron-like scandals and that private companies that worked with Enron had terminated employees who attempted to blow the whistle on illegal and unethical conduct. Thus, it held, such private contractor employees should also be protected. In her dissent, Justice Sotomayor stated that the Court’s decision would give SOX’s whistleblower protections a “stunning reach.”

Privately held companies that contract with public companies should be aware of this new area of potential exposure and consider revising their policies in accordance with this decision.